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Published on: Jul 30, 2026

Highlights of 41st GST Council Meeting

The focus area of the 41

st GST Council Meeting, held on 27th August 2020, was the only shortfall of GST compensation and ways to compensate the states for the revenue shortfalls. Noticeably, the 41st GST Council Meeting was conducted via video conferencing under the Chairmanship of the Finance Minister, Shrimati Nirmala Sitharaman. The current article summarizes the key highlights of the GST Council Meeting.

Options made available to states to meet the shortfalls

The figurative working says that the total shortfall for the Financial Year 2020-2021 works out to be INR 2,35,000 Crores. Out of the said total shortfall of INR 2,35,000, only INR 97,000 Crore relates to a shortfall on account of GST implementation. The remaining shortfall is marked as a shortfall on account of COVID-19 pandemic. In order to meet the shortfall, the states are given two options. The two options so available with the states are explained hereunder- OPTION 1 – State borrowings via Centre facilitation-

  • Under this option, the Centre can facilitate the shortfall occurred only on account of GST implementation i.e. INR 97,000 Crore,
  • The borrowings will be possible through a special window by the Reserve Bank of India (RBI),
  • The borrowings can be repaid after 5 years on the collection of the cess, and
  • A reasonable rate of interest will be payable on such borrowings.

OPTION 2 – State direct borrowings from RBI – Under this option, state can go for direct borrowing to the extent of INR 2,35,000 Crores from the RBI. The states are required to communicate the selected option within a period of seven working days.

Certain clarifications

While addressing the press, certain clarifications were given. The said essential clarifications are-

  • The Government will provide further 0.5% relaxation in the state borrowings limit under the FRBM Act. The relaxation will facilitate the states to borrow more funds.
  • The above arrangement will remain valid only for the Financial Year 2020-2021. For the period from April 2021, the situation will be further re-assessed and decide accordingly.
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Frequently Asked Questions

Common questions about GST Compensation Shortfall Solutions for States.

The main focus of the 41st GST Council Meeting was to address the shortfall in GST compensation owed to states and find ways to compensate them for the revenue shortfalls. The total projected shortfall for the Financial Year 2020-2021 is estimated to be INR 2,35,000 crores.
According to the calculations presented, out of the total shortfall of INR 2,35,000 crores, INR 97,000 crores is attributed to the shortfall due to GST implementation, while the remaining amount is marked as a shortfall caused by the COVID-19 pandemic.
The two options given to states to meet the shortfall are: Option 1 - State borrowings facilitated by the Centre through a special window from the Reserve Bank of India (RBI) to cover the INR 97,000 crore shortfall due to GST implementation. Option 2 - Direct borrowings by states from the RBI for the entire INR 2,35,000 crore shortfall.
Under Option 1, where states borrow to cover the INR 97,000 crore shortfall due to GST implementation, the borrowings can be repaid after 5 years from the collection of the GST compensation cess. A reasonable rate of interest will be payable on such borrowings.
The central government has announced a further 0.5% relaxation in the state borrowing limit under the FRBM Act (Fiscal Responsibility and Budget Management Act). This relaxation will enable states to borrow more funds to meet their revenue requirements.
The arrangement for addressing the GST revenue shortfall, including the two borrowing options and the additional 0.5% borrowing limit relaxation, will remain valid only for the Financial Year 2020-2021. The situation will be reassessed from April 2021 onwards, and further decisions will be taken accordingly.
The 41st GST Council Meeting was conducted via video conferencing under the Chairmanship of the Finance Minister, Shrimati Nirmala Sitharaman.
The states have been given a period of seven working days to communicate their preferred option (Option 1 or Option 2) for addressing the GST revenue shortfall.
The GST compensation cess is a specific tax levied on certain goods and services to compensate states for any potential revenue loss due to the implementation of the Goods and Services Tax (GST) regime. The proceeds from this cess are used to compensate states for their revenue shortfalls.
The 41st GST Council Meeting was conducted via video conferencing, likely due to the ongoing COVID-19 pandemic situation and the need to follow social distancing norms and safety protocols.