Highlights of 41st GST Council Meeting

The 41st GST Council Meeting, convened on 27th August 2020, primarily addressed the shortfall in GST compensation and explored mechanisms to remediate the revenue deficits faced by the states.

This significant meeting was conducted via video conferencing, chaired by the Finance Minister, Shrimati Nirmala Sitharaman. Below, you'll find a comprehensive summary of the key highlights and decisions made during the GST Council Meeting.

Options Available to States to Meet Revenue Shortfalls

The calculated shortfall for the Financial Year 2020-2021 stands at INR 2,35,000 Crores. Of this amount, INR 97,000 Crores is due to a shortfall from GST implementation, while the remaining gap is attributed to the COVID-19 pandemic.

States have been extended two specific borrowing options to bridge these revenue shortfalls:

OPTION 1: State Borrowings via Centre Facilitation

The Centre will facilitate borrowings necessary to cover the GST implementation shortfall of INR 97,000 Crores.
This borrowing will occur through a special window facilitated by the Reserve Bank of India (RBI).
Repayment of these borrowings is set for after 5 years, using the collected cess.
A competitive rate of interest will be applied to these borrowings.

OPTION 2: State Direct Borrowings from RBI

States may directly borrow up to INR 2,35,000 Crores from the RBI under this option. States need to declare their chosen course of action within seven working days.

Clarifications Provided

During the press briefing, specific clarifications were highlighted:

The Government has proposed a further 0.5% relaxation in the borrowing limits for states under the FRBM Act to aid in acquiring additional funds.
This arrangement applies solely to the 2020-2021 fiscal year. Subsequent conditions from April 2021 will require reassessment.

For further insights into previous GST Council meetings, you can refer to the 36th GST Council Meeting and the 40th GST Council Meeting. Additionally, explore what's next with the 52nd GST Council Meeting.

These measures aim to sustain state economies amidst fiscal challenges. For an understanding of how future policy adjustments may unfold, you might find the decisions of the 45th GST Council Meeting helpful, along with the 44th GST Council Meeting.

For more comprehensive highlights, consider the insights provided in the 43rd GST Council Meeting and look forward to updates from the 42nd GST Council Meeting.

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Frequently Asked Questions

Common questions about 41st GST Council Meeting.

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.