GST cess may fall short of Rs 1.37 lakh crore for states compensation; Centre likely to meet shortfall

The goods and services tax (GST) compensation cess fund could face a shortfall of ₹1.37 lakh crore by March 31, with the Centre looking to clear the interest of ₹50,000 crore due on the back-to-back loans taken during the Covid period, officials said. Those loans had been taken to meet the shortfall in the fund at that time.

The Centre may have to pay additional final compensation of ₹13,000 crore to states in the current fiscal year after reconciliation of audited accounts, the officials said.

A compensation cess is levied on sin goods such as tobacco, aerated drinks and others in the highest 28% tax bracket under GST. The proceeds from the cess are used to compensate states for any revenue loss on account of the transition to GST for five years since the roll out of the indirect tax in July 2017. It was extended till March 31, 2026, to pay for the principal and interest on the back-to-back loans.


Payment of additional compensation is pending in cases where states have not furnished the Auditor General's certificate, or where reconciliation of accounts and payment is under process after submission of the certificate, an official said. Eight states are yet to submit the AG's certificate for their FY22 accounts. The Centre has asked them to submit it by January 31, so that the pending amount can be reconciled and released.

The Centre, however, is confident that cess collections until March 31, 2026, will be able to make up for the shortfall. "As we will close the financial year, the compensation fund account will have a shortfall of ₹1.37 lakh crore but then we have 12 more months to collect cess which will take care of the shortfall ," a senior official told ET.