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What Are The Two Options Provided By Centre To States On GST Compensation?

Story Highlights

  • Options will be available for this year only. In April 2021, the council will review for the fifth year and decide the action
  • Central government will give a further relaxation of 0.5% in the lending limit of states under the FRBM Act
  • GST compensation gap of Rs 2.35 lakh this year can be bridged by states in consultation with RBI

Mumbai: Union Finance Minister Nirmala Sitharaman on Thursday chaired the 41st GST Council meeting and provided two options for compensating states on the Goods and Services Tax (GST) to bridge revenue shortfall as the economy faces a prospect of contraction in the current fiscal year due to COVID-19 crisis.

The first option provides a special window to the states in consultation with the Reserve Bank of India (RBI), which provides Rs 97,000 crore at an interest rate. This amount can be repaid after five years from the collection of cess.

Another option is that the entire GST compensation gap of Rs 2.35 lakh this year can be bridged by states in consultation with RBI.

Finance Minister Nirmala Sitharaman, “We had put two options before the states. We told them that we will help to talk with the RBI and get the G-security interest rates so that each state does not have to struggle for loans.” 

“The states have requested us to elaborate on both the options and give them seven full working days to consider and get back to that. A brief GST Council meeting can happen again,” she said.

Sitharaman said, “Once this arrangement has been agreed by the GST Council, we can move fast and remove these dues and take care of the rest of the financial year as well.”

These options will be available for this year only. In April 2021, the council will review for the fifth year and decide the action.

She emphasized that there would be no rate hike for the reduction in cess.

Further, Sitharaman said that the central government will give a further relaxation of 0.5% in the lending limit of states under the FRBM Act.

“The central government will give a further relaxation of 0.5% in the lending limit of states under the FRBM Act as Phase II of option 1. States themselves can expect more compensation because that is an injury caused by COVID-19, ”she said.

The Finance Minister chaired the meeting which was also attended by Minister of State for Finance Anurag Thakur, finance ministers of various states and union territories, and senior officers from the Centre and states.

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