The Central government has released the entire amount of Goods and Services Tax (GST) compensation payable to states up to 31 May 2022 by clearing an amount of Rs 86,912 crore.

This decision was taken to assist the states in managing their resources and ensuring that their programmes, especially the expenditure on capital, are carried out successfully during the financial year.

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The decision has been taken despite the fact that only about Rs.25,000 crore is available in the GST Compensation Fund. The balance is being released by the Centre from its own resources pending collection of cess, the Finance Ministry said on Tuesday.

The GST was introduced in the country with effect on July 1 , 2017, and the states were assured compensation for the loss of any revenue arising on account of implementation of the GST as per the provisions of the GST (Compensation to States) Act, 2017 for a period of five years.

For providing compensation to the states, a cess is being levied on certain goods and the amount of cess collected is being credited to Compensation Fund. Compensation to the states is being paid out of the Compensation Fund with effect from July 1, 2017.

Bi-monthly GST compensation to the states for the period 2017-18 and 2018-19 was released on time out of the Compensation Fund. As the states’ protected revenue has been growing at 14 percent compounded growth whereas the cess collection did not increase in the same proportion, COVID-19 further increased the gap between projected revenue and the actual revenue receipt including a reduction in cess collection.

In order to meet the resource gap of the states due to the short release of compensation, the centre has borrowed and released Rs.1.1 lakh crore in 2020-21 and Rs.1.59 lakh crore in 2021-22 as back-to-back loans to meet a part of the shortfall in cess collection. In addition, the centre has also been releasing regular GST compensation from the fund to meet the shortfall.