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The Finance Ministry said that the Centre has already released eight months of GST compensation dues to the states for the fiscal ended March 2022 and Rs 78,704 crore is pending due to inadequate balance in the cess fund. It said normally, GST compensation for 10 months (April-January) of any financial year is released during that year and the compensation of February-March is released only in the next financial year. 

Under GST essential items are either exempted or taxed at the lowest slab, while luxury and demerit items attract the highest slab. Luxury and sin goods attract cess on top of the highest 28 per cent slab. This cess collection is used to compensate states for the revenue loss due to GST rollout. At the time of GST implementation on July 1, 2017, the Centre had agreed to compensate states for five years till June 2022, and protect their revenue at 14 per cent per annum over the base year revenue of 2015-16.

The ministry further said that after taking into account the back to back loan, Rs 7.35 lakh crore has been released to the states to compensate for revenue loss. Currently, only for the year 2021-22, compensation of Rs 78,704 crore is pending due to inadequate balance in the fund, which is equivalent to compensation of four months. For 2020-21 fiscal no compensation is pending to the states and a total of Rs 2.78 lakh crore, which includes back to back loan, has been released to states.