GST Council Meeting: Some States To Push For Extension Of GST Compensation Period 

A clutch of states, governed by parties other than the ruling Bharatiya Janata Party, intend to come together to push for a longer period of compensation under the Goods and Services Tax regime.

Compensation Cess For FY22

Separately, the GST Council will on May 28 also take up the matter of estimated shortfall in compensation cess collected in FY22. This is the second year that such a shortfall is arising. Last year, the central government made up the shortfall by extending loans of Rs 1.1 lakh crore to states. It funded only part of the shortfall, arguing the rest was on account of an unprecedented event that it was not liable to recompense.

This year, the central government is looking to borrow about Rs 1.6 lakh crore from the market to compensate states, the government official quoted above said. At present, this will cover for the full estimated shortfall. The government estimates that a compensation of Rs 2.7 lakh crore would be needed this year. Of this, about Rs 1-1.1 lakh crore will likely be collected through the cess imposed, the government official indicated

Any current estimates are subject to change given the prevailing uncertainty in the economy amid the second wave of Covid infections.

In FY21, the central government borrowed 3–5-year funds from the market and passed them on as back-to-back loans to states. A similar mechanism will be followed this year.