Government, States To See Rs. 2 Lakh Crore GST Cess Gap Owing To Second Covid 19 Wave

Amid the second raging Covid 19 wave, the GST collection is estimated to be lower than the Rs. 1 trillion or Rs. 1 lakh crore figure for the first time in 9 month in June. For the April month, GST collection was at Rs. 1.41 lakh crore. Given the record high figure of the GST collection for April month, government was of the opinion that business activity remained robust despite the second coronavirus wave.

Government, States To See Rs. 2 Lakh Crore GST Cess Gap Owing To Second Covid 19 Wave

"Despite the second wave of Covid-19 pandemic affecting several parts of the country, Indian businesses have once again shown remarkable resilience by not only complying with the return filing requirements but also paying their GST dues in a timely manner during the month," the Ministry of Finance said in a statement.

Now as businesses across industries have been again impacted due to lockdowns to curb the second wave of Covid 19, the compensation to states is on course to be higher than cess collection for the second straight year. The GST compensation to state is likely to be widened to Rs. 2.5 -3 lakh crore in the ongoing financial year in comparison to cess collection of Rs. 1 lakh crore estimated in the Budget.

Last year for the FY21, the government estimated a lower Rs. 2.35 lakh crore compensation requirement for the states.

Why States Are Paid GST Compensation?

When the GST came into effect from July 1, 2017, there were made provisions for the implementation of Goods and Services Tax. Accordingly, it was decided that states shall be compensated for the loss of revenue arising on account of GST implementations.

At that time it was decided that any revenue shortfall to the states owing to the shift to the new indirect tax regime shall be made from a GST compensation fund for a 5 year period that is due to end in 2022.

In fact in the upcoming GST meet scheduled for May 28, 2021, there shall also be a discussion on likely increasing the compensation to states owing to the halt in business activity due to Covid 19.

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