The coronavirus pandemic severely hit Goods and Services Tax, or GST, collection, creating a deficit of Rs 2.35 lakh crore for the 2020-’21 fiscal year, the Ministry of Finance said on Thursday.

Finance Minister Nirmala Sitharaman chaired the 41st meeting of the Goods and Services Tax Council to deliberate on the revenue shortfall being faced by states amid the coronavirus crisis. Sitharaman referred to the coronavirus crisis as an “act of God” that led to the contraction of India’s economy and led to the shortfall in GST collection.

At a press briefing after the meeting, Finance Secretary AB Pandey said the Centre had released GST compensation of more than Rs 1.65 lakh crore for the financial year 2019-’20. “This included Rs 13,806 crore for March and cess amounting to Rs 95,444 crore,” he said.


The finance ministry also consulted Attorney General KK Venugopal for his legal opinion on GST collection and compensation. Venugopal told the government that the states had to be paid GST compensation for a transition period from July 2017 to June 2022. “The Attorney General’s clear opinion was that the compensation gap cannot be met from the Consolidated Fund of India,” the finance secretary said. “He [Venugopal] suggested that the compensation cess levy can be extended beyond 5 years, to meet the shortfall.”

The GST Council deliberated on two options through which the states could make up for the shortfall. The first option that was discussed by the finance ministry was to provide a special window to states, after consulting the Reserve Bank of India, to provide Rs 97,000 crore at a reasonable rate of interest.

The second option discussed by the GST Council was that the states meet the entire compensation gap of Rs 2,35,000 crore by consulting the RBI. “These options will be sent to the states within seven days,” the finance secretary said.

“We told them [the states] that we will facilitate talking with the RBI and help to get G-security linked interest rates so that each state does not have to struggle for loans,” Sitharaman was quoted as saying by the Bloomberg. The states, meanwhile, asked the Centre to give them a week to think about both the options.

The finance minister added that the states will be given a relaxation of 0.5% in the borrowing limit under the Fiscal Responsibility and Budget Management Act, 2003.

Sitharaman also said that the options discussed at the GST meeting would only be applicable for the current financial year. The finance minister added that the council will look into tax collection deficit again in April 2021.

The economic loss caused by the coronavirus shutdown has adversely impacted the Centre’s revenue. However, states, especially those ruled by Opposition parties, continue to press their demand, claiming that their own finances have been rendered inadequate during the pandemic. On Wednesday, Congress President Sonia Gandhi held a meeting with chief ministers of Opposition-ruled states. At the virtual meeting, she said that the Centre’s refusal to pay Goods and Services Tax compensation is “nothing short of betrayal of the states and people”.

But it is not just Opposition leaders who want GST compensation to be paid. Bihar Deputy Chief Minister and Finance Minister Sushil Kumar Modi had said on Tuesday that the Centre should borrow and pay GST compensation to states.