GST COMPENSATION - ECONOMY

News: T.N. seeks the release of ₹11,185 crore worth of pending compensation dues from the Central government 

What's in the news?

       The Tamil Nadu Government requested the Centre to release the pending compensation of ₹11,185.82 crore due to the State, as it was expecting a revenue shortfall.

       It also requested for extending the GST compensation period by at least two more years.

GST COMPENSATION CESS:

       GST Compensation Cess is levied by the GST Act 2017.

       The object of levying this cess is to compensate the states for the loss of revenue arising due to the implementation of GST on 1st July 2017 for a period of five years or such period as recommended by the GST Council.

       Compensation cess is levied over and above the amount of GST charged in relation to a particular supply.

       The calculation is similar to that of GST i.e. the prescribed rate is applied to the transaction value given under section 15 of the CGST Act 2017 to arrive at the cess liability. 

Compensation CESS Fund:

       The GST Act states that the cess collected and the amount as may be recommended by the GST Council would be credited to the fund.

       It is levied on inter and intra-state supply of notified goods such as aerated drinks, coal, tobacco, automobiles for 5 years. 

Distributing GST compensation:

       The compensation cess payable to states is calculated based on the methodology specified in the GST (Compensation to States) Act, 2017.

       The compensation fund so collected is released to the states every 2 months.

       Any unused money from the compensation fund at the end of the transition period shall be distributed between the states and the centre as per any applicable formula.