Many states have asked for an extension of the GST compensation mechanism beyond June 2022, according to Finance Minister Nirmala Sitharaman.
States were granted bi-monthly compensation for any revenue loss in the first five years of GST implementation from July 1, 2017, under the Goods and Services Tax (GST) law. The gap is determined based on a 14% yearly increase in state GST receipts over the base year of 2015-16. The 5-year period will come to an end in June 2022.
The compensation amount to be paid from the compensation fund is calculated by adding a cess to the highest tax bracket on luxury, depreciation, and sin products. Sitharaman stated in a written reply to the Lok Sabha that the central government is committed to providing GST compensation to states and union territories for a period of five years, as required by the Constitution. Because compensation fund revenues are falling short of expectations, the Centre has borrowed money worth Rs 1.10 lakh crore and Rs 1.59 lakh crore for 2020-21 and 2021-22, respectively, and handed them on to states as back-to-back loans.
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