The Goods and Services Tax (GST) compensatory levy on states has been extended by nearly four years to March 2026, the Union Finance Ministry announced in a notification on Friday.
In accordance with the GST (tax levying and collecting period) rules, 2022, the countervailing tax will continue to be levied from July 1, 2022 to March 31, 2026.
The levy scheme was due to end on June 30. The extension will help the Center pay compensation due to the States for May and June 2022. However, this will not benefit the States as they will not receive compensation until then.
The TPS Board, chaired by Union Finance Minister Nirmala Sitharaman and made up of FMs from the States, decided to extend it until March 2026 to repay loans taken out in the last two fiscal years to compensate for the shortfall in win in their revenue collection.
The compensation tax, levied on luxury and demerit goods, will continue to be collected until March 2026 to repay borrowings that were made in 2020-21 and 2021-22 to compensate states for lost revenue of the GST.
In order to bridge the lack of resources of states due to the short-term release of compensation, the Center has borrowed and released Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 under form of back-to-back loan to meet part of the shortfall in the collection of cess.
MS Mani, Partner, Deloitte India, is of the view that “the extension of the levy of compensation, although expected, will continue to place a burden on affected businesses, especially sectors like automotive, which need to be encouraged because they are one of the sectors that has a multiplier effect on GDP and employment.
The Center has repaid Rs 7,500 crore as interest charges for the loan in 2021-22 and Rs 14,000 crore is to be paid in this financial year. From 2023-24, repayment of the principal amount will begin and continue until March 2026.
(With text entries from PTI)