Introduction

GST Council has approved a bill for State compensation for revenue loss arising out of GST (goods and services tax) in the country. A document called Goods and Services (State compensation for loss of revenue) bill shall provide for compensation to the states for loss of revenue arising on the account of implementation of the GST for a period of 5 years according to section 18 of the Constitution Act.

State compensation

Highlights of Compensation Bill

Highlights of the compensation bill are as follows:

  1. Provides for revenue loss compensation for 5 years to the state.
  2. 14% Nominal growth rate projected revenue has been decided
  3. Base year to be the financial year.
  4. Taxes are subsumed to be considered.
  5. Local Bodies taxes excluded (other than state taxes)
  6. Cess for five years goods and services tax compensation Cess to be levied.
  7. The input tax credit of cess will be permitted.

 

The procedure of State compensation for revenue loss

Parliament may provide for state compensation for revenue loss arising out of the implementation of the GST by law based on the recommendations of the GST Council. Such compensation could be for a maximum period of 5 Years.

For GST registration, GST return and GST software you can connect with legalraahi.

States will obtain provisional compensation from Centre for loss of revenue from implementation of goods and services tax in each quarter but the last annual number would be decided only after an audit carried out by Comptroller and Auditor General. The compensation would be met through the levy of a cess called ‘goods and services tax Compensation Cess’ on luxury items and sin goods like tobacco, for the first 5 years. Any excess money after the end of five-year tenure in the ‘goods and services tax Compensation Fund’ so created, would be divided between Centre and states.

Half of the excess cost would go to the consolidated fund of India and would form part of the overall tax kitty, which is divided into a fixed proportion between the Centre and states. The remaining 50% would be disbursed among the states in the ratio of their total revenues from SGST in the previous year of the transition period.

If any compensation paid is found to be over the money actually due to them after the Comptroller and Auditor General audit to a state then it shall be adjusted against next year’s compensation.

The loss of revenue to a state will be calculated by the difference between the actual realization to a state under GST regime and the tax revenue, it will have got under the old indirect tax regime after taking a 14 per cent increase over the base year of 2015-2016.

Any compensation paid to a state found to be more than the money actually due to them after the CAG audit would be adjusted against next year’s compensation, the draft law said. The loss of revenue to a state will be the difference between the actual realization to a state under GST regime and the tax revenue, it will have got under the old indirect tax regime after taking a 14 per cent increase over the base year of 2015-2016.

 

Conclusion

In case you have a query or confused about GST as a business owner, feel free to consult the GST experts at LegalRaahi. You can get full assistance on GST Registration and GST Return Filing. You can also use our GST software for doing end-to-end GST compliance and related services.