In the meeting the Central has provided the states 2 (two) options to overcome the financial losses as caused by this pandemic.

Finance Minister of India, Mrs. Nirmala Sitharaman, on 27th August 2020 chaired the 41st meeting of the Goods and Service Tax (GST) council to discuss on compensating states for the revenue shortfall.

Date of Meeting – 27th August 2020

Mode of meeting: Meeting was held virtually through video conferencing.

Chairperson - Mrs. Nirmala Sitharaman, Finance Minister of India.

Members Attended – Mr.  Anurag Thakur, Minister of State (MoS) for Finance, finance ministers of various states and Union Territories and senior officers from the Union Government and states.


The states have been demanding compensation from the central government in order to meet the deficiency in revenue as caused by the lockdown due to the outbreak of pandemic Covid-19. Due to this pandemic, businesses have faced huge losses, which made the economy worst.

The states have been expecting from the meeting that the center will provide enough compensation and coverage to deal with the huge losses suffered by them. They were also expecting that the center will change a few of the tax rates that will help the states to overcome their financial losses.

Therefore, in the meeting, the Central has provided the states 2 (two) options to overcome the financial losses as caused by this pandemic. The states have 7 working days to think over the options and decide which one to opt for as per the Central.

Key outcome of the GST Council Meeting
  • States have been provided with the following 2 (two) options:
    • Option-1: To provide a special window to states, in consultation with RBI, to provide the Rs 97,000 crore at a reasonable rate of interest; this money can then be repaid after five years from the collection of cess.
    • Option-2: Entire GST compensation gap of Rs 235,000 crore of this year can be met by the states, in consultation with RBI.
  • States have been given a period of 7 working days to think over the proposal.
  • The option is available only for this current year.
  • The Attorney General is of the view that the Compensation gap cannot be met from the Consolidated Fund.
  • A further relaxation of 0.5% in states’ borrowing limit under the FRBM Act for Rs.2.03 lakh crore provided by the central. The announcement related to this has been made in May 2020 at an Aatmanirbhar Bharat press conference. This will help the states to borrow more depending upon the severity of the COVID-19 impact.
  • The pros and cons of both the options as provided to the states were discussed. If any of the states go for the first option, then they will be entitled to the compensation cess for later years also and the center will provide the requisite support. And if the second option is being opted for, then that will involve more amount of borrowing that is paid by using the cess collected during the transition.
  • The GST Council will re-examine the situation next year and will decide for a further period for providing relaxation.
  • The states also have the facility to borrow money with the G-security linked interest rates.
  • With the help of the RBI, the center will proceed to clear the state dues.
  • The states must take a decision based on the compensation cess they can expect in the future periods/years.


State’s Comments on the outcome of the GST Council meeting

The majority of the states have expressed their displeasure over the outcome of the meeting. As per them, full compensation is their constitutional right and if they accept this decision then they will have to let go of some part of the compensation.

Edited by Minu Mishra


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