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GST Compensation: 21 States Opt For 1st Option

Author: Finapolis Network/Wednesday, September 23, 2020/Categories: Tax

GST Compensation: 21 States Opt For 1st Option

New Delhi: With 21 states expressing their preference for the Borrowing Option-1 proposed by the Centre to meet the GST compensation needs of states this year, decks have been cleared for the GST Council to approve the new compensation mechanism and make it universally applicable across all states and Union Territories at its next meeting on October 5. Andhra Pradesh expressed its willingness to option-1, while Telangana and eight other states yet to announce their decision.

Finance Ministry sources said that GST Council, as per the GST Act, needs only 20 states to pass any resolution, in case voting is required on any issue. With 21 on board with the first option, this could well be considered for adoption by the Council. Among the 21 states/UTs opting for first option on GST compensation are: Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand and Uttar Pradesh.

Manipur, the only state which had earlier chosen Option-2, later preferred to change it to Option-1. A few more states are, also, to give their borrowing option in a day or two. However, states like Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal are yet to respond to the GST Council proposal.

If the other states do not submit their options before the due GST Council meet next month, then they will have to wait till June 2022 to get their compensation dues, subject to the condition that the GST Council extends the cess collection period beyond 2022, the Ministry sources said. Under the existing GST Act, compensation for shortfall in GST collection, under an agreed formula, is payable by the Centre for the first five years of the operations of new tax system from July 2017 to June 2022. On August 27, the GST Council, in its 41st meeting, had decided to give its member states two borrowing options to meet their compensation shortfall and a response time of 7 working days from the formal receipt of the detailed proposal on options by email.

Almost 15 states had submitted their options by September 15 and more have joined now. The first option on GST compensation brought before the Council last month allows states to borrow, under a special dispensation from the RBI, a sum of about Rs 97,000 crore being the shortfall calculated by the Centre that is directly on account of GST implementation. Under this option, borrowing will not be treated as debt of the state and they would also be permitted to avail full additional borrowing limits given under Aatmanirbhar Bharat package unconditionally.

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