Goods and Services Tax for Fiscal Compensation Extended to March 2026 :GST Council – The New Indian Express

By PTI

NEW DELHI: The government has extended by nearly 4 years until March 31, 2026 the deadline for levying the GST compensation tax.

In accordance with the Goods and Services Tax Rules 2022 (Period of Levy and Collection of Tax), notified by the Ministry of Finance, the offset tax will continue to be levied from July 1, 2022 to March 31, 2026.

The cess levy was due to end on June 30, but the GST Board, chaired by Union Finance Minister Nirmala Sitharaman and made up of state FMs, decided to extend it until March 2026 to reimburse the borrowings taken out over the last two fiscal years to compensate for the shortfall in their revenue collection.

After the 45th meeting of the GST Council in Lucknow in September last year, Sitharaman said that the compensation scheme for states for loss of revenue resulting from the subsumption of their taxes such as VAT in the national tax TPS uniform, would end in June 2022.

However, the compensation tax levied on luxuries and demerits will continue to be collected until March 2026 to repay borrowings that were made in 2020-21 and 2021-22 to compensate states for lost revenue. of the GST.

In order to bridge the resource shortfall of states due to the short release of compensation, the Center has borrowed and released Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 in the form of back-to-back loans to meet part of the shortfall in the collection of cess. The Center has repaid Rs 7,500 crore as interest charges for the loan in 2021-22 and Rs 14,000 crore is to be paid in this financial year.

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From 2023-24, repayment of the principal amount will begin and continue until March 2026. Goods and Services Tax (GST) was introduced in the country with effect from July 1, 2017, and states were assured of compensation for the loss of any income resulting from the implementation of the GST for a period of five years.

Although protected state revenues grew at a compound growth rate of 14%, tax collection did not increase in the same proportion and COVID-19 further widened the gap between protected revenues and actual revenue, including a reduction in tax collection.

The Center has released the total amount of GST compensation payable to states through May 31, 2022.

AMRG & Associates senior partner Rajat Mohan said that with the extension of the compensation tax, products like tobacco, cigarettes, hookah, carbonated water, high-end motorcycles, airplanes, yachts and motor vehicles would continue to be subject to higher tax rates.

MS Mani, partner at Deloitte India, said: “The extension of the compensation tax, although expected, will continue to place a burden on affected businesses, especially sectors like automotive, which need to be encouraged because it is one of the sectors that have a multiplier effect on GDP and employment.”

Abhishek Jain, Indirect Tax Partner, KPMG in India, said: “Whether States would be compensated beyond 5 years or not may ultimately be decided at the next GST Board meeting.

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