Centre Transfers Rs 6,000 Crore in GST Compensation to States

The centre transferred ₹ 6,000 crore on account of GST compensation to states under the special borrowing plan.

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The GST Council, comprising of all state finance ministers, will meet on Monday to develop a consensus on the issue of GST compensation cess.

The central government on Friday borrowed and transferred Rs 6,000 crore on account of Goods and Services tax (GST) compensation to states under the special borrowing plan, the Finance Ministry announced.

"Today, the Central Government borrowed and transferred Rs 6,000 crores as first tranche to 16 states namely Andhra Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Meghalaya, Odisha, Tamil Nadu, Tripura, Uttar Pradesh, Uttarakhand and and two Union Territories: UT of Delhi and UT of Jammu and Kashmir," Finance Ministry said in a press release, quoted NDTV.

The government borrowed the money at an interest rate of 5.19 percent. The tenure of borrowing is expected to be 3 to 5 years, the ministry said.

Last week, the Centre gave in to the demands of opposition-ruled states to borrow and fund the GST compensation shortfall. The ministry said the government of India has evolved a special borrowing window, involving back-to-back borrowing, for 2020-2021, that 21 states and two union territories have opted for. Out of these, five states did not have any shortfall on account of GST compensation.

The GST council headed by Finance Minister Nirmala Sitharaman have met several times in the past few months but failed to come to a consensus on the issue of funding the shortfall of Goods and Services Tax (GST) revenue of states.

In order to fill the gap, during a meeting in August, the centre had given two options of borrowing to the states. One, borrow Rs 97,000 crore from a special window facilitated by the RBI. Two, borrow the entire expected shortfall of Rs 2,35,000 crore this year.

Last week, the centre had agreed to borrow up to ₹ 1.1 lakh crore on behalf of the states to bridge the shortfall in GST collections.

This borrowing will not have any impact on the fiscal deficit of the government and the amounts will be reflected as the capital receipts of the state governments and as part of the financing of its respective fiscal deficits

A slowdown in the economy due to the coronavirus pandemic has has resulted in a drop in the Goods and Services Tax (GST) collections, upsetting the budgets of states.

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