Center and States in a Clash For GST Compensation Cess

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GST compensation

The center and states are in a situation of clash over the GST compensation. The officials set up a meeting to resolve the issue today at 11 AM.




The reason for the meeting is that the center is yet to pay GST compensation to the states. And due to the pandemic, it will be hard for the center to do that. Because the tax collections have gone down drastically courtesy of the pandemic.

GST compensation

Which is why the States would probably try to push the Center to borrow from the market and fulfill their end of the bargain. Similarly, the center would also push the states to individually borrow from the market in order to make do with the current situation.




States also suggested that the compensation cess should be increased in order to fulfill the current requirements. And the term for compensation cess should be extended from 5 years to 10 years, which ends in 2022 currently.

Both centers and states are in a tight position over this matter which is why there is a situation of indecision created. What would actually happen could only be announced after today’s meeting is adjourned and reports come out.

Now, as expected, there were comments from political leaders and personalities.

“This refusal to compensate the states (for GST payments) is nothing short of betrayal,”     – Congress president, Sonia Gandhi

“If there’s no money, how will the states work? It is our right to ask for what’s due,”            – Maharashtra chief minister, Uddhav Thackeray




“This FY we will end at a deficit of Rs 25,000 crore. We’ve given all the powers of tax collection to the prime minister, we’ve given up our rights,” he said. “Now they’re saying they can’t pay – we should go to the PM and present this issue.”
Punjab chief minister, Amrinder Gill 




“This means that it (state) will get repaid from the compensation cess fund over a much longer duration (tenure of the loan),” he said, but also questioned such a mechanism. “How can that (repayment) be done when the fund is not adequate to meet the monthly requirements.”
– Bihar deputy chief minister and finance minister, Sushil Modi

The current requirement for compensation cess is calculated to be INR 26,000 Crores. Which is approximately double of what it was calculated earlier  INR 13,775.
This is not a sum that can be generated overnight and this the reason for the clash between center and states. Now, let’s see what happens and how it affects the layman working on the ground. Which cannot be ignored in this debate as the common man is the one who is likely to suffer most from this.