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No Consensus On Compensation: next GST Council meeting on 12 October

The Centre and states on Monday could not reach any consensus on the issue of borrowing to make up for compensation shortfall at the 42nd Goods and Services Tax (GST) Council meet. The GST Council has decided to meet again on 12 October. ’10 states demand that full compensation should be paid to the states during the current year as per clauses in the law and centre should borrow. Decision was postponed to the next meeting on 12th of October’ said kerala finance minister after meeting. “Entire compensation is going to be paid back to the states. The compensation shortfall which has arisen due to GST implementation or due to COVID19 is all going to be given back to the states,” assured finance minister Nirmala Sitharaman. The total shortfall in collection of GST estimated at ₹2.35 lakh crore, said revenue secretary Ajay Bhushan Pandey. Out of the total shortfall, ₹97,000 crore is on account of GST shortfall, while the rest is due to COVID-19 pandemic. During the last meeting in August, the Centre presented two options before states to meet the GST Shortfall. The two options before states were 1) A special window can be provided to the states, in consultation with the Reserve Bank of India, at a reasonable interest rate for borrowing of ₹97,000 crore. The amount can be repaid after five years (of GST implementation) ending 2022 from cess collection. The GST panel had increased the borrowing limit of ₹1.1 lakh crore instead of ₹97,000 crore on Monday. 2) The second option is to borrow the entire ₹2.35 lakh crore shortfall under the special window. While at least 21 states, mostly ruled by BJP or parties which have supported it on issues, had till mid-September opted to borrow ₹97,000 crore to meet the GST revenue shortfall in the current fiscal, opposition-led states like West Bengal, Punjab and Kerala have not yet accepted the borrowing option given by the Centre. This year’s compensation cess collected amounting to ₹20,000 crores will be disbursed to the states tonight,” finance minister Nirmala Sitharaman said on monday.

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