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GST - Resolution of Compensation brawl now hinges on two OPTIONS to be given to States

By TIOL News Service

NEW DELHI, AUG 27, 2020: THE GST Council at its 41st meeting managed to resolve the festering and singing issue of compensation payment to the States. After a marathon four and half hour deliberations, the two options have been worked out and the States will have to tick mark one of them within seven days and send it back to the Centre.

The Option-1 is about the Centre borrowing the money on behalf of the States and repaying the same with interest from the receipts collected in the Compensation kitty. However, since it may spill over the five year period ending in June, 2022, the period of levying compensation cess will be extended for three more years.

The Second Option is about the Centre negotiating the interest rate with the RBI and facilitating the loan to be taken by the States in their own name. However, it will be only for one year and the quantum of loan will be confined to Rs 97000 Crore shortfall in the compensation kitty. If a State is keen to borrow more sum than one's entitlement from the compensation kitty, they may do the same but will have to repay from their own kitty, not the compenesation fund.


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