On August 27, 2020, the 41st meeting of goods and services tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman, was held via video conferencing to discuss the issue of compensating states on account of revenue loss due to implementation of GST, and deficit in the compensation cess fund due to the fall in tax collections.
During the meet, Centre offered two borrowing options to states to overcome shortfall in GST compensation cess fund viz:
- States can either borrow the full compensation deficit of Rs 2.35 lakh crore, which includes revenue loss due to transition to GST and also the Covid-led slowdown, from the markets, facilitated by the Centre and the RBI, orÂ
- The shortfall that’s purely due to GST implementation of Rs 97,000 crore via the RBI special window.
- The number of assessees covered by the GST at the time of its inception were about 65 lakh. Now the assessee base exceeds 1.24 crore.
The states will revert on these plans in seven working days to the council, which will meet again next month. Payment of principal and interest on these borrowings would be met by the cess collection with no liability of repayment falling on states. The Centre will give a further relaxation of 0.5 percentage point in states’ borrowing limits under Fiscal Responsibility and Budget Management Act.
Key Points:
-The centre has released over Rs 1.65 lakh crore as GST compensation to states for 2020, including Rs 13,806 crore for March, while cess collected for GST compensation was only Rs 95,444 crore.
-The GST collection has been severely impacted due to Coronavirus pandemic this year and the shortfall is Rs 2.35 lakh crore for fiscal 2021.
–Government announces tax exemptions for businesses with annual turnover of up to Rs 40 lakh
Businesses with an annual turnover of up to Rs 40 lakh are GST exempt. Initially, this limit was Rs 20 lakh. Also, those with a turnover up to Rs 1.5 crore can opt for the Composition Scheme and pay only 1% tax
- Significant reliefs have also been extended to the construction sector, particularly the housing sector which has been placed at the 5 per cent tax rate. GST on affordable housing has been reduced to 1%.
Recent Related News
On June 12, 2020, Union Finance & Corporate Affairs Minister Nirmala Sitharaman chaired the virtual 40th GST Council Meeting. The key outcome of this meet was further relief on late fee and interest payable on late payments as a part of compliance burden of businesses. This was the first meeting after COVID-19 breakout in India.
About GST Council:
GST Council is an apex member committee to modify or to procure any law or regulation based on the context of goods and services tax in India. The council is headed by the union finance minister Nirmala Sitharaman assisted with the finance minister of all the states of India.
- It was constituted on 15th September 2016 under Article 279A of the Constitution.
