The central government has extended the Goods and Service Tax (GST) compensation levy till March 2026, a notification showed on Friday, June 24. However, this compensation window extension is not for states, the notice said. The GST compensation levy extension has been facilitated to repay the borrowing made in past to pay promised compensation to states. This comes at a time when the GST council is scheduled to meet in a few days.
“In exercise of the powers conferred by sub-section (2) of section 12 read with section 8 of the Goods and Services Tax (Compensation to States) Act, 2017 (15 of 2017), the Central Government on the recommendations of the Council hereby makes the following rule,” read an extraordinary gazette from the finance ministry on Friday.
“The period for levy and collection of cess under sub-section (1) of section 8 of the Goods and Services Tax (Compensation to States) Act, 2017 shall be upto the 31st March, 2026,” further read the gazette.
The extension has been ordered to repay the borrowing made in the past to pay the promised compensation to states. The GST levy extension will also help in paying Compensation to states due for the month of May and June 2022, according to sources.
The levy of GST compensation cess on certain goods and services had already got an extension till March 2026 to make up for the borrowings and arrears of compensation paid to states over the last two financial years.
In 2017 while rolling out the regime, the Centre had assured a GST revenue growth of 14 per cent per year for a period of five years up to June 30, 2022, in a bid to get all states on board with the new rule that subsumed most state-level levies. The Centre had said that any shortfall will be met from the compensation cess fund for these five years.
The extension has been notified as per the repayment schedule had been agreed upon in September 2021, at the GST Council meet. From July 1 this year, it has been decided that states will not receive GST compensation. Despite some states have demanded an extension of this, the Centre is not in favour. The GST council is scheduled to meet next week at Chandigarh.
In the 42nd GST council meet in 2020, finance minister Nirmala Sitharaman had decided to extend compensation cess beyond 2022. “Levy of Compensation Cess to be extended beyond the transition period of five years i.e. beyond June, 2022, for such period as may be required to meet the revenue gap. Further details to be worked out,” the finance ministry had said in a statement at the time.
To meet the shortfall in the GST compensation fund, the Centre has borrowed and released to states Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 as back-to-back loans to meet a part of the shortfall in cess collection. In addition, the Centre has also been releasing regular GST compensation from the fund to meet the shortfall.
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