goods and service tax
Published on 14 April 2025
Comprehensive Guide to GST Compensation for States in India
Overview of GST Compensation to States
The GST (Compensation to States) Act, 2017 outlines the framework for compensating states for potential revenue losses following the implementation of Goods and Services Tax (GST). According to Union Minister of State for Finance, Shri Pankaj Chaudhary, the compensation for the financial years 2017-18, 2018-19, and 2019-20 has already been disbursed to the respective states.
Pandemic Impact on GST Compensation
The Minister highlighted that the economic repercussions of the COVID-19 pandemic led to an increased demand for compensation due to decreased GST collections and a corresponding drop in GST compensation cess. As a recent measure, on November 3, 2021, the Central Government disbursed ₹17,000 crore from the Compensation Fund to support states. This amount is in addition to the previous GST compensation of ₹1,13,464 crore allocated to states/Union Territories (UTs) for the period of April 2020 to March 2021, which was necessary due to insufficient resources in the Compensation Fund.
Discussions in GST Council Meetings
The shortfall in cess collections and its impact on the Compensation Fund have been a focal point in the 41st, 42nd, and 43rd GST Council meetings. Following discussions, the GST Council resolved to provide ₹1.1 lakh crore for the FY 2020-21 and ₹1.59 lakh crore for FY 2021-22 to states/UTs as back-to-back loans. This front-loaded funding is intended to facilitate capital expenditure by states/UTs. Furthermore, the Centre continues to release regular GST compensation based on the availability in the Compensation Fund to address shortfalls in GST revenue.
Pending Compensation Figures
As per provisional estimates, ₹37,134 crore for the period of April 2020 to March 2021 and ₹14,664 crore for April to September 2021 remain pending for disbursement to states/UTs. The Central Government remains committed to fulfilling its obligation under the GST (Compensation to States) Act, 2017, which may involve extending the levy of the Compensation cess beyond the five-year period to cover GST revenue shortfalls and service related loans acquired through the special window scheme.
Constitutional Provisions on GST Compensation
Regarding the potential extension of GST compensation past 2022, the Minister referenced Section 18 of the Constitution (One Hundred and First Amendment) Act, 2016. This section mandates that the Parliament, upon the GST Council's recommendation, must provide compensation to the states for revenue losses incurred due to GST implementation for five years post-GST rollout. During this transitional period, states are guaranteed a revenue protection rate of 14% per annum over the revenue levels established in the base year of 2015-16.
Annexure: Details of GST Compensation Released on 03.11.2021
Below is the breakdown of GST compensation allocated to various states/UTs:
| S. No. | Name of State/UT | Amount (Rs. In crore) |
|---|---|---|
| 1 | Andhra Pradesh | 543 |
| 2 | Assam | 160 |
| 3 | Bihar | 342 |
| 4 | Chhattisgarh | 274 |
| 5 | Delhi | 1155 |
| 6 | Goa | 163 |
| 7 | Gujarat | 1428 |
| 8 | Haryana | 518 |
| 9 | Himachal Pradesh | 178 |
| 10 | Jammu & Kashmir | 168 |
| 11 | Jharkhand | 264 |
| 12 | Karnataka | 1603 |
| 13 | Kerala | 674 |
| 14 | Madhya Pradesh | 542 |
| 15 | Maharashtra | 3054 |
| 16 | Meghalaya | 28 |
| 17 | Odisha | 286 |
| 18 | Puducherry | 61 |
| 19 | Punjab | 835 |
| 20 | Rajasthan | 653 |
| 21 | Tamil Nadu | 1314 |
| 22 | Telangana | 279 |
| 23 | Tripura | 17 |
| 24 | Uttar Pradesh | 1417 |
| 25 | Uttarakhand | 270 |
| 26 | West Bengal | 772 |
| Total | 17000 |