GST compensation to States of ₹34K Crore Released by Government

COVID-19 has affected many lives in India as well as the world. India is under complete lockdown till 17th May 2020 in a bid to stop the spread of coronavirus. The Government has now released the GST compensation to States to the tune of ₹34,000 crores.

Due to the COVID-19 Lockdown, there are various challenges faced by taxpayers in adhering to GST compliance. The Government has given certain relaxations to the businesses as regards GST compliance and has now released all pending GST compensation to States.

GST compensation to States Released

Finance Ministry has recently provided a massive relief to the states by releasing ₹34,000 crores GST compensation to states to cover their revenue loss during the COVID-19 lockdown.

1. Why such a significant GST compensation to States?

The GST Authority decided to release significant GST compensation to States since some States had asked the Government to reimburse the GST compensation. 

These GST compensation payments were pending for several months, despite the notices sent by Punjab and other State governments. 

2. How much GST compensation in the last few months?

During the previous month, the Government has released around ₹1.35 lakh crore to states and union territories towards GST compensation cess. 

Such steps are necessary to fill the GST revenue gap because of the lockdown due to the coronavirus. The lockdown has caused close down of the businesses due to which the traders having GST registration are unable to fulfill GST compliance.

Recently, the Government extended the due date of all GST compliance.

3. What other steps should be there to fill the GST revenue gap?

The Government has stated that due to lower GST collections, the current GST compensation cess probably won’t be sufficient to pay for the revenue losses. 

According to sources, the States are now seeking an extension of the cut-off rate of GST compensation. 

4. What are the Pros & Cons of GST relaxations?

Since everything has its pros and cons, the GST relaxation and the extension of the Financial Year also has its advantages and demerits.

I. PROS:

• The advantages of the relaxation would be on account of the numerous contemplations in the formulation of policies etc.
• The current GST policies will be highly beneficial for both the manufacturing and service sectors in the long run.

II. CONS:

• It would disturb the collection of information, and it may require a long time to come back to regularity in such a manner.
• Several amendments to GST laws and framework would be needed.
• The managerial task would increase on account of transition t new rules. There would be less time for focusing on improving the GST tax collection machinery. 

Hence, the Government must make a wise decision considering all the above pros & cons of the relaxations, in the interest of taxpayers having GST registration.