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Question

Consider the following with respect to GST compensation

1. It was to be paid by the centre to states for compensating loss of revenue due to GST implementation
2. The compensation was to be paid out of GST cess collection by the centre

Which of the above are correct?

A

1 only
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B

2 only
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C

Both 1 and 2
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D

None of the above
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Solution

The correct option is C
Both 1 and 2
GST Compensation Cess is levied under the Goods and Services Tax (Compensation to States) Act 2017.

The objective of levying this cess is to compensate the states for the loss of revenue arising due to the implementation of GST for a period of five years or such period as recommended by the GST Council. It was agreed that revenue shortfalls arising from the transition to the new indirect taxes regime would be made good from a pooled GST Compensation Fund for a period of five years that is set to end in 2022. This corpus in turn is funded through a compensation cess that is levied on so-called ‘demerit’ goods.

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