41st GST Council Meeting

The 41st GST Council meeting was held on Thursday, 27th August 2020 on a single-point agenda i.e.GST Compensation to the States and Union Territories..

The 41st GST Council met under the Chairmanship of Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman via video conferencing. Shri Anurag Thakur and Finance Ministers of States & UTs and Senior officers from Union Government & States were present.

In the Meeting it has been discussed that about Rs 3 lakh crore would be the need of compensation to be paid to states while compensation cess collected would be Rs 65,000 crore. The shortfall for the Financial Year 2020-21 will be Rs 2,35,000 crore. Out of this, Rs 97,000 crore is the shortfall due to GST implementation, whereas the rest is considered as due to COVID-19.

The states have been provided with two options to meet the shortfall of compensation cess only for the current financial year and the GST Council will reassess the situation in somewhere in April 2021 for the next financial year.

Option I- The centre can facilitate Rs 97,000 crore to states as borrowings, through a special window by the RBI, and this can be repaid after 5 years on the collection of cess paying a reasonable rate of interest.

Option II- The states can borrow Rs 2,35,000 crore directly from the RBI.

Smt. Nirmala Sitharaman said that the states have asked to put both the options in detailed note and share it with states within a day or two and give them seven full working days after which states will come to say how they want to go ahead. It means that we may have a very brief meeting of the council again.

Smt. Nirmala Sitharaman said that the detailing will be done and sent to the states of both the options where we will facilitate by talking with RBI and ensuring they get bi- monthly compensation for this year.

Accordingly, The states will have to evaluate both these options within seven working days when the GST Council will again meet to finalize the choices.

Highlights of Finance Minister Nirmala Sitharaman's discussions with the media after the 41st GST Council Meeting

The centre will provide a further relaxation of 0.5% in states borrowing limit under the FRBM Act for Rs.2.03 lakh crore to facilitate states to borrow more depending upon the severity of COVID-19 impact.
.If the state goes for the first option, it will borrow less but entitlement of the compensation cess for this year and later years will be protected.
.If the state goes for the second option, there will be involvement of more amount of borrowing that is paid by using the cess collected after the transition period.
.In both the option it shall not be the burden of the state but it will be paid by the compensation cess which will be collected.
The arrangement will remain valid only for the FY 2020-21 and the GST Council will reassess the situation in somewhere in April 2021 for the next financial year.
The centre will facilitate talking to RBI so that the states can borrow money with the G-sec proportionate no. of years linked interest rates without any hurdles.
The Compensation Cess will be continued after the transition period until such time as all arrears of compensation for the transition period are paid to the States. The first charge on the Compensation Cess each year would be the interest payable; the second charge would be the principal repayment. The remaining arrears of compensation accrued during the transition period would be paid after the interest and principal are paid.
Answering a question, Finance Minister said that today there had been not even a minute discussion on rate increases as some of the states said that this may not be the appropriate time to discuss increase in tax rates.

Encl:

41st GST Council Meeting

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