At the time of the launch of the GST, an amendment to the Constitution provided that Parliament, by law, would provide compensation to States for a period of five years for loss of revenue as a result of the introduction of the GST. Accordingly, the GST International Compensation Act was enacted to provide for the release of compensation compared to 14% annual growth in excess of 2015-16 income from taxes imposed on the GST. This compensation is paid into the compensation fund and according to the Act, all compensation is paid into the fund. Currently, cess is charged for items such as pan masala, cigarettes, coal and cars.
Compensation of about R49,000 crore was removed in 2017-18 from the fund, which increased to R83,000 crore in 2018-19 and continued to ₹ 1.65 lakh crore in 2019-2020. Over the past three years, about R3 lakh crore has been paid off in the United States. However, the demand for compensation has increased significantly between 2020-21 due to the impact of covid on revenue. To ensure that governments have adequate and timely resources to combat covid and related problems, the Center borrowed ₹ 1.1 lakh crore in 2020-21 and ₹ 1.59 lakh crore in 2021-22 and exported it respectively. In 2021-22, the institute confirmed that the release of this ₹ 1.59 lakh crore was pre-loaded to ensure that countries had adequate resources in the first half of the year.
Considering this loan, compensation of ₹ 2.78 lakh crore has been issued to the countries for the year 2020-21 itself and there is no pending year. Including back-to-back assistance, R7.35 lakh crore has been released internationally to date, and, currently, in 2021-22 only, compensation of R78,704 crore is still pending due to insufficient balance in the fund, equivalent to four months’ compensation.
Generally, the ten-month compensation for April-January of any financial year is issued for that year and the February-March compensation is only for the following financial year. As mentioned earlier, the eight-ten-month compensation for 2021-22 has already been issued internationally. The pending amount will also be deducted if the amount due increases in the compensation fund.
