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Central Government to Receive Larger Portion of Remaining GST Compensation Fund

Recent parliamentary updates to the GST Compensation Bill have shifted revenue allocation rules for the initial five years post-GST implementation, now favoring the Central government. The revised legislation, simpler than the previous model, ensures an equal sharing of residual funds between states and the Centre. This modification is expected to result in a greater financial share for the Central government.

📖 1 min read read🏷️ GST Compensation Fund

Changes to GST Compensation Fund Allocation

The GST Compensation Bill, recently introduced in Parliament, has modified the regulations for revenue distribution during the initial five years following GST implementation. These revisions now favor the Central government. Previously, the model law had a slight inclination towards states, stipulating that 50% of the compensation fund's residual balance after five years would be shared between the Centre and states. The remaining portion was to be disbursed to states based on their revenues in the final year of the transitional period.

However, the bill presented in the Lok Sabha streamlines this approach, establishing an equal revenue-sharing mechanism between states and the Central government. This new arrangement results in a larger allocation of funds to the Centre compared to previous provisions.

This adjustment was reported by the Economic Times.

Frequently Asked Questions

What is the Goods and Services Tax (GST) in India?
GST is a comprehensive, multi-stage, destination-based tax levied on every value addition. It replaced multiple indirect taxes previously existing in India, aiming to simplify the tax structure and reduce cascading effects.
How many types of GST are there in India?
In India, there are four main types of GST: Central GST (CGST), State GST (SGST), Integrated GST (IGST), and Union Territory GST (UTGST). CGST and SGST/UTGST are levied on intra-state supplies, while IGST applies to inter-state supplies.
What is the purpose of the GST Compensation Cess?
The GST Compensation Cess was introduced to compensate states for any loss of revenue arising from the implementation of GST. It is levied on certain goods and services, and the collected amount is deposited into a non-lapsable GST Compensation Fund.
Who is required to register for GST?
Businesses involved in the supply of goods or services are generally required to register for GST if their aggregate turnover exceeds a specified threshold limit, which varies for goods and services and certain states.
What are the main benefits of GST in India?
Key benefits of GST include the elimination of cascading taxes, a unified national market, simplified compliance, increased transparency, and improved efficiency in logistics and supply chain management across the country.

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