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GST Compensation States Act 2017

The adoption of the GST was made possible by the States ceding almost all their powers to impose local-level indirect taxes and agreeing to let the prevailing multiplicity of imposts be subsumed under the GST. While the States would receive the SGST (State GST) component of the GST, and a share of the IGST (Integrated GST), it was agreed that revenue shortfalls arising from the transition to the new indirect taxes regime would be made good from a pooled GST Compensation Fund for a period of five years that is set to end in 2022. This corpus in turn is funded through a compensation cess that is levied on so-called ‘demerit’ goods.For the 2020-21 fiscal year, the revenue shortfall has been anticipated at Rs.3 lakh crore, with the Compensation Fund expected to have only about Rs.65,000 crore through cess accruals and balance to pay the compensation to the States.

Features GST Compensation, are as per the following:

• The compensation under this Act shall be payable to any State during the transition period.

• The compensation payable to a State shall be provisionally calculated and released at the end of every two months period, and shall be finally calculated for every financial year after the receipt of final revenue figures, as audited by the Comptroller and Auditor-General of India:

• Where no compensation is due to be released in any financial year, and in case any excess amount has been released to a State in the previous year, this amount shall be refunded by the State to the Central Government and such amount shall be credited to the Fund in such manner as may be prescribed.