GST Meet: Rs 2.35 L Cr Shortfall, 2 Compensation Options Explored

The AG opined that shortfall in GST collections cannot be met from Consolidated Fund of India, a govt official said.

Finance Minister Nirmala Sitharaman.

(Photo: PTI)

Addressing the media after the 41st GST Council meeting, Finance Minister Nirmala Sitharaman on Thursday, 27 August, said that two options of compensating states were discussed at the 5-hour-long meeting.

"Option 1 presented to the GST Council was to provide a special window to states, in consultation with RBI, to provide Rs 97,000 crores at a reasonable interest rate... Option 2 presented to GST Council was that the entire GST compensation gap of Rs 2,35,000 crore of this year can be met by states, in consultation with RBI. These options will be sent to states for a view within seven days and will apply for this fiscal year only," Finance Secretary Ajay Bhushan Pandey was quoted as saying at the briefing.

Coronavirus Outbreak an ‘Act of God’

A relaxation of 0.5 percent in the borrowing limit of states under the Fiscal Responsibility and Budget Management (FRBM) Act will also be given as part of the second leg under the first option, Sitharaman said.

“States have asked us to give them seven working days to think about the options. These options would be available only during the current year, the situation would be reviewed next year. We may have another GST meet soon,” FM Sitharaman added.

“Once the arrangement is agreed upon by the GST Council, we can proceed fast and clear these dues, and also take care of the rest of the financial year,” reported ANI, quoting Sitharaman.

During the briefing, the finance minister also referred to the coronavirus outbreak as an 'act of god' which may lead to a contraction of the economy in the current fiscal.

‘GST Collection Severely Impacted Due to COVID-19’

The finance secretary started off the meeting by saying that GST collection has been severely impacted this year due to the COVID-19 outbreak.

"As mentioned by finance minister in GST Council meeting held in March, legal views of the matter were sought from the attorney general of India who said that GST compensation has to be paid for the transition period from July 2017 to June 2022," Ajay Bhushan Pandey said, adding that the AG has opined that shortfall in GST collections cannot be met from Consolidated Fund of India.

He pointed out that the amount due to states for April-July in GST compensation is Rs 1.5 lakh crore, attributing the amount to low GST collections in April and May.

The GST shortfall in FY21 is expected to be Rs 2.35 lakh crore, of which only Rs 97,000 crore is estimated to be due to implementation of GST and the rest due to the pandemic, Pandey pointed out at briefing.

Delayed Compensation

The council met on Thursday to take up the single-point agenda of GST compensation to states affected by delays in the release by the Centre, news agency IANS reported.

The compensation has not been paid to the states since March. Even the compensation for March was delayed and paid in late July.

(With inputs from IANS, PTI and ANI.)