₹95k cr surplus likely in GST compensation fund
The Goods and Services Tax (GST) compensation fund may have about ₹ 95,000 crore as surplus at the end of its extended tenure on March 31, 2026, even after paying in full dues owed to states and retiring all debt liabilities, people in the know said, citing official estimates. ₹ 95k cr surplus likely in GST compensation fund
The GST Council may take a view on this matter at its next meeting, expected to be held soon, and decide how this excess amount -- collected as compensation cess -- would be utilised, they said, requesting anonymity. A cess is a specific-purpose levy in addition to regular taxes and the money from a cess fund is spent for a designated aim.
The GST Council, which is the apex decision-making body on the indirect tax regime, is expected to meet either before the Monsoon session of the Parliament or after it, depending on the availability of members, these people said . The Council's meeting is overdue and expected soon, they added. The 55th GST Council last met in Jaisalmer,Rajasthan, on December 21.
The Council is expected to consider several important pending matters at its forthcoming 56th meeting, including the rationalization of tax rates, ease of compliance and restructuring of the cess, they said. Hindustan Times on June 5 reported that as part of tax rationalisation, the council may consider reducing GST slabs from four to three by dropping the 12% tax rate. On June 16, the newspaper reported that the council may also consider replacing the GST compensation cess on sin goods and luxury items such as cigarettes and automobiles with two different specific-purpose levies to support health and clean energy campaigns.
Commenting on the surplus cess collection, one of the two people cited above said: 'In all probability, entire back--to-back loans along with interest would be serviced by December 2025 or max by January 2026. But the cess collection would continue for two more months, leaving some surplus. Utilisation of this surplus would require the Council's direction and approval.'
According to official estimates, the compensation cess fund is expected to collect in total ₹ 10,27,966 crore since the GST regime was rolled out on July 1, 2017, a second person said. The actual collection of the levy was ₹ 7,61,215 crore as on July 2024. While the projected collection for the rest of the fiscal year (August, 2024 to March 2025) came to ₹ 99,501 crore, the mop up in FY26 (April 2025 to March 2026) is estimated at ₹ 1,67,250 crore, he said.
'States have already received their entire dues of ₹ 6,64,203 crore up to June 30, 2022 and no amount is pending for release. Liabilities due to the back-to-back loan amounted to ₹ 2,69,208 crore. Taking total outgo from the compensation fund to ₹ 9,33,411 crore, leaving an estimated surplus of ₹ 94,555 crore,' he said.
At the time of launching the GST regime, the law assured states a 14% increase in their annual revenue for five years of the transition period from July 1, 2017 to June 30, 2022, and also guaranteed that their revenue shortfall, if any, would be made good through a compensation cess levied on luxury goods and sin products such as liquor, cigarettes, other tobacco products, aerated water, automobiles, and coal. The GST compensation cess was, however, extended from June 30, 2022 till March 31, 2026, only to retire debts taken on behalf of states to meet the revenue shortfall during the Covid period. While states have no claims for compensation from July 1, 2022, the cess continues till March 31, 2026 to service the back-to-back loans released to states when compensation cess collection fell in 2020 and 2021 because of a slump in economic activity due to the pandemic.
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