Gst Compensation Bill

The Gst Compensation Bill was introduced on the 27th of March, 2017, as a measure to compensate the states on any losses occurred due to the implementation of the Nationwide single tax system, termed as the

Goods and Services Tax. The Government of India brought into force for a period of five years from the date of implementation of the SGST Act (GST for states), which, as we all know, was on the 1st of July, 2017. The growth rate of the states in this period of transition projects at 14% per annum.

Base year for Calculation

The base year for calculation will be the financial year of 2015-16. The base year revenue will be taken from the various state taxes imposed, which includes the likes of VAT, Central Sales Tax, Luxury Taxes, Advertisement Tax etc. Alcohol or any products related to petroleum will be excluded from the calculation. The revenues from the states transferred to municipalities instead of depositing into consolidated funds should reflect in the definition of revenue subsumed. However, the exclusion shall apply to Local body taxes (other than state taxes). In the "Special category states", the revenue foregone on account of exemption of taxes granted by states shall apply as the definition of revenue for the base year 2015-16.

GST Compensation Cess

A GST

compensation cess will be imposed for supply or imports of prescribed goods and services, as well as taxes which are payable on a reverse charge basis, the receipts of which will be deposited to the GST Compensation fund. The Central Government shall use these funds to compensate for the states. All registered person opted for Composition levy can exclude Cess as liable on supplies. In case of any underutilized money, the states shall share among the states based on the revenue and the Centre shall share the other 50%.

Period of Calculation for Gst Compensation Bill

This provision of compensation, as mentioned above, is for a period of five years from the launch of the SGST Act. The period of calculation and release of the same occur every two months, and also on an annual basis. The latter will be audited by the Comptroller and Auditor General of India(CAG).

What constitutes the base year revenue?

The base year revenue for a state shall act as the sum of the revenue collected by the state and the local bodies during the base year, on account of the taxes levied by the respective state or union, and net of refunds, with respect to the following taxes imposed by the State or Centre, as applied as subsumed into goods and services tax:

Value Added Tax(VAT), Sales Tax, Purchase Tax, tax collected on works contract, or any tax imposed by the particular State relating thereto;
Central Sales Tax(CST) levied by the Central Sales Tax Act, 1956;
Entry tax, octroi, local body tax or any other tax imposed by the particular State relating thereto;
Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling, or any other taxes imposed by a particular State relating thereto;
Taxes on advertisements or any other taxes imposed by a particular State under the erstwhile Entry-55 of List-2(State List) of the Seventh Schedule to the Constitution;
Excise duties on medicinal and toilet preparations imposed by the Union but collected and retained by the concerned State Government relating thereto;
Any cess or surcharge imposed by the State Government under any Act included in the definition of 'earlier laws' as per section 2(39) of the State Goods and Services Act of the concerned State

What is excluded from calculating revenue?

So, what doesn't come under the umbrella of revenue calculation? Let's examine;

Any taxes imposed under any Act made under the erstwhile Entry 54 of List-2(State List), of the seventh schedule to the Constitution, on the sale or purchase of petroleum crude, high speed diesel, petrol, natural gas, aviation turbine fuel and alcoholic liquor for human consumption;
Any taxes imposed by the Central Sales Tax Act, 1956, on the sale or purchase of petroleum crude, high speed diesel, petrol, natural gas, aviation turbine fuel and alcoholic liquor for human consumption;
Any cess imposed by the State Government on the sale or purchase of petroleum crude, high speed diesel, petrol, natural gas, aviation turbine fuel and alcoholic liquor for human consumption;
Entertainment tax levied by the states but collected by the local bodies

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Frequently Asked Questions

Common questions about GST Compensation Bill and Cess Details.

The GST Compensation Bill was introduced to compensate the states for any revenue losses incurred due to the implementation of the Goods and Services Tax (GST), which is a nationwide single tax system. The bill aims to provide financial support to the states during the transition period to the GST regime.

The base year revenue for a state is calculated as the sum of revenue collected by the state and local bodies during the financial year 2015-16, on account of various taxes such as Value Added Tax (VAT), Central Sales Tax, Entry Tax, Taxes on luxuries, Taxes on advertisements, and certain excise duties. It excludes taxes on petroleum products, alcoholic liquor, and certain local body taxes.

The GST Compensation Cess is a cess imposed on the supply or imports of prescribed goods and services, as well as taxes payable on a reverse charge basis. The receipts from this cess are deposited into the GST Compensation Fund, which is used by the Central Government to compensate the states for revenue losses due to GST implementation.

The provision of compensation to the states under the GST Compensation Bill is for a period of five years from the implementation date of the State Goods and Services Tax (SGST) Act, which was July 1, 2017.

The calculation and release of GST compensation to the states occur every two months, as well as on an annual basis. The annual compensation will be audited by the Comptroller and Auditor General of India (CAG).

The compensation amount for a state is determined based on the assumed annual growth rate of 14% over the base year revenue for the transition period of five years. If the actual revenue growth rate is lower than 14%, the state is entitled to receive compensation for the shortfall.

In case of any unutilized funds in the GST Compensation Fund, 50% of the unutilized amount will be shared among the states based on their revenue, and the remaining 50% will be shared by the Central Government.

No, taxes imposed on petroleum crude, high-speed diesel, petrol, natural gas, aviation turbine fuel, and alcoholic liquor for human consumption are excluded from the calculation of base year revenue for GST compensation.

Local body taxes, other than state taxes, are generally excluded from the calculation of base year revenue for GST compensation. However, revenues from state taxes transferred to municipalities instead of being deposited into the consolidated funds are included in the definition of revenue subsumed.

No, all registered persons who have opted for the Composition Levy under GST can exclude the GST Compensation Cess from their liability, as it is not payable on their supplies.