The Government of India has released an amount of Rs. 86,912 crores to cover the entire amount of GST compensation due to states until May 31, 2022.

This decision was made to aid states in managing their resources and ensuring that their programmes, particularly capital expenditures, are successfully implemented during the fiscal year.

The Centre has decided to clear the dues till May 31 in order to ensure that their capex remains on track. The Centre cleared the dues despite only having Rs 25,000 crore in the compensation fund. The additional money has been taken out from Centre's own kitty.

After clearing the dues, only the June compensation remains.

To bridge the resource gap created by the short delivery of compensation, the Centre borrowed and issued Rs.1.1 lakh crore in 2020-21 and Rs.1.59 lakh crore in 2021-22 as a back-to-back loan to cover a portion of the cess collection shortfall.

The above decision has been accepted by all the states. In addition, the Centre has started releasing GST compensation from the Fund on a regular basis to cover the shortfall.

Goods and Services Tax was introduced in the country w.e.f. 1st July, 2017 and States were assured for compensation for loss of any revenue arising on account of implementation of GST as per the provisions of the GST (Compensation to States) Act, 2017 for a period of five years.

For providing compensation to States, Cess is being levied on certain goods and the amount of Cess collected is being credited to Compensation Fund. Compensation to States is being paid out of the Compensation Fund w.e.f. 1st July, 2017.

Source: The Economic Times 

https://economictimes.indiatimes.com/news/economy/finance/centre-clears-entire-gst-compensation-dues-of-states-till-may-31-2022/articleo w/91917965

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