All Updates of 41st GST Council Meeting on States’ Compensation

The 41st GST Council Meeting was organized on August 27, 2020, till 5:30 pm. The GST council meeting members discussed the “revenue compensation to states”.

The 41st GST Council Meeting was conducted via video conference due to the corona pandemic. Also, there was some discussion pending before the GST council such as GST rate cut on two-wheelers, etc. Check out all updates from the 41st GST council meeting:

All Updates of 41st GST Council Meeting

• FM Nirmala Sitharaman: The states will get loans at similar rates if these states will burn with bond yields. Thus it is good to run the process so that all states will get the loan at the same rates.
• PM: Revenue Secretary: Through the collection of cess the repayment of loans with interest payments will be done from 6th year onwards.
• FM Nirmala Sitharaman (in response to a media query): The government agrees that this is not the right time to discuss the tax rates
• FM Nirama Sitharaman:  the consideration of 0.5% in the borrowing limit is given by the government. beneath the FRBM Act as the second leg of Option 1. States can select to borrow more, as due to COVID-19 injury. The state will borrow less if the state will choose option1.
• FM Nirmala Sitharaman: “There may be some states which may prefer to get the hard-wired compensation rather than going to the market to borrow more. The option was tailor-made considering that states can take a call depending on the compensation they expect to come.
• Revenue Secretary: The total compensation for GST for April – July 2020, will be paid is Rs 1.5 lakh crore, it is because there is a rare collection of GST in April and May. The requirement is around 3lakh crore for annual compensation of GST and collection for cess is Rs 65000 crore, creating a difference of Rs2.35 lakh crore.
• FM Nirmala Sitharaman: As GST officials will agree on it then these dues will be cleared fastly. This choice is only for this particular year in April 2020. The official will select an action for 5th year.
• FM Nirmala Sitharaman: States have two options placed for it, we will operate it by consulting it with RBI and help by G security which has linked interest rates so states will not suffer for loans. 7 working day is given to initiate it and a detailed webinar will conduct again.
• Finance Secretary: A 7-day window will be requested by the states to get back to the finance ministry. This is only for the present year with respect to the situation for the best of the country. Option 2: Rs 2,35,000 crore for this year will be compensated for the states through consulting with RBI to filled the GST gap. Option 1: With consulting to RBI a special window will be open for providing Rs 97,000 crore with the effective rate of interest, the money can be repaid after 5 years through the cess collection.
• FM Nirmala Sitharaman: The finance minister of West Bengal proposed to devolve the cesses but not discussed.
• Finance Secretary Ajay Bhushan Pandey: The other option is how the RBI can lend to the states. Within 7 days this option will be sent to the states for review.
• Finance Secretary Ajay Bhushan Pandey: The Attorney General’s clear opinion was that the compensation gap cannot be met from the Consolidated Fund of India. He suggested that the compensation cess levy can be extended beyond 5 years, to meet the shortfall”
• Finance Secretary Ajay Bhushan Pandey: Attorney General said that GST Compensation has to be paid for a transition period – from July 2017 to June 2022. Revenue has to be protected Compensation gap to be met from the cess fund, which in turn has to be funded from the levy of cess.
• Finance Secretary Ajay Bhushan Pandey: GST compensation payment assured for a transition period – from July 2017 to June 2022. Also, the compensation gap and compensation levy to be extended above 5 years.

What were the expectations of the 41st GST Council Meeting?

The meeting was held through video conferencing. Meanwhile, as per some recent reports, several states are going through financial problems due to the financial slowdown and above all losses due to the Covid-19 pandemic. And due to financial problems, they are requesting the government to release the compensation on time. There is no doubt this was the main agenda of the 41 GST Council meeting, but some more points are expected to be discussed in this meeting. The expected points are listed below.

Revenue Compensation to States Under Indirect Tax Regime

This issue was to be the focus of the 41 GST Council meeting. The States have been asking the Finance Ministry to release the compensation in a timely manner but even the center’s financial position along with GST CESS Collections have been hit hard due to COVID-19 Pandemic and back to back lockdowns.

As per reports, The GST Council were to go through several recommendations to raise funds, which also includes Expand the cess collection by placing an overall rate rationalization exercise or expanding the cess collection by imposing cess.

On Source said that “The suggestion on hiking cess quantum on sin goods have come from several states including Delhi, Punjab, Goa, Bihar and a few other, who have argued that council can consider mobilizing funds these three sin goods, currently, do not attract the maximum cess levy allowed under the cess rules”. 

The Financial Ministry also received suggestions from the states’ side to allow them to borrow funds from the market that can reduce the gap in losses. However the decision is still pending from the ministry. However, there is rumor in the air that the centre will allow states to borrow funds from the market to meet the losses.

Another 42nd GST Council Meeting on September 19

As per some previous updates, there is also another GST council meeting on September 19, and those reports also suggest that in that meeting discussion will take place regarding the e-way bill on gold as well as technical changes in GST returns.

GST Rate Cut on Two-wheelers

The FM Nirmala Sitharaman committee had also said that recently the proposal to cut GST rate on two-wheelers will be taken to the council meeting. IT is speculated that the proposed GST rate cut may reduce down the two-wheeler price by approximately INR 8000- 10,000.

Some sources familiar with the discussion informed us that, In the next month, there is one more meeting will be organized on September 19, where the council will discuss other GST related issues Have a look at the major issues/problems being faced by Indian people after the GST roll-out. We have enlisted reports and research as collected from the several sectors. Read More.

In last month the Government released GST compensation of ₹ 13,806 crores to states for march month and with it, the government paid a total of ₹ 1.65 trillion and completed the payment of Financial Year 2020.

States that are facing financial problems are asking the government to release their compensation in a timely manner but due to lockdowns and market slowdown, central’s financial position along with GST cess Collection The collection of revenue from GST Cess has seen a 42% shortage in the financial year 2019-20. Read More is not getting better.

Another major issue that was expected to be discussed in these meetings is the Centre is ready to compensate for how much revenue loss. As per the law, by considering the year 2016 as the base year, states are guaranteed a 14% annual revenue jump. Meanwhile, The government has maintained that it can only provide compensation for the revenue loss due to fewer collections in GST cess.

Read Also: GST Council 1st Meeting to 40th Meeting: All You Need to Know

The 41st GST Council meeting earlier received a suggestion to allow the council to borrow funds from the market to reduce the gap and then pay it by extending GST cess levy after the year 2022. However, GST Council is thinking about it and it was discussed earlier in the meeting organized just after lockdowns.