Compensation Cess to continue, Quarterly tax filing from Jan 2021

Source :Sify
Author :Finance Desk
Last Updated: Tue, Oct 6th, 2020, 15:42:42hrs
Nirmala GST Council

New Delhi: The 42nd GST Council meeting held on Monday saw several tax related discussions.

Among the most important deliberations, the states contention on GST compensation cess was also discussed. GST compensation cess, according to the CBDT (Central Bureau of Direct Taxes), was introduced to compensate states for the loss of revenue when GST was implemented across the country on July 1, 2017. It was initially announced for a period of five years.

The committee decided to extend period of compensation cess beyond five year period. This means, the compensation cess is likely to continue beyond June 2022.

The compensation cess is also levied on products such as tobacco, aerated beverages, alcohol, and even high-end vehicles or motorcycles.

The issue around Compensation Cess gained prominence in the latter half of 2019 after states such as Punjab, Delhi, Kerala, Rajasthan, and West Bengal complained that their dues were not paid on time by the centre.

As per Finance Ministry estimates, the GST compensation gap in FY21 is expected to be staggering Rs 2.35 lakh crore, as the Centre expects to collect mere Rs 65,000 crore from GST cess due to Covid-impacted, subdued economic activity.

State governments have rued that non-receipt of compensation cess affected their own finances. A delay in payment of compensation cess also results in a impact in quality of services rendered by the state government.

The extension of compensation cess is believed to be beneficical to states, but it may be a setback for several businesses that have to pay cess.

States were also informed of Union Finance Minister Nirmala Sitharaman of the decision of releasing Rs 20,000 crores (for current fiscal) towards the states. This amount was to be released by Monday night itself. An amount of Rs 25,000 crores would be released next week for collection of IGST (Intra-state GST) for year 2017-18.

The GST Council also discussed that small taxpayers with aggregate annual turnover of Rs 5 crores will be allowed to file returns on a quarterly basis. Such taxpayers would be allowed to pay their tax outgo on a monthly basis. The policy will be implemented from January 1, 2021 onwards.

An official statement said that taxpayers opting for the quarterly system could pay 35 per cent of their net cash tax liability of the last quarter using an auto generated challan.

Also discussed were GST levied on satellite services and alcohol based hand-sanitizers. In order to encourage domestic launching of satellites particularly by young start-ups, the satellite launch services supplied by ISRO, Antrix Corporation Ltd and NSIL have been exempted from 18 percent GST.

Alcohol based hand-sanitizers charged at 18 percent GST were a part of the discussion, however, no discussion was taken.

The Council is expected to meet on October 12 to continue further discussions on compensation cess. The centre may bring in a new formula to calculate GST compensation, however, states and union territories are against such as move. The council's meeting may involve fresh inputs to iron out any confusion over such issues.

The Centre has also agreed to rework the option 1 of GST compensation formula by taking 7 per cent annual growth of revenue instead of 10 per cent decided earlier. This would take up the loss of revenue due to GST implementation up from Rs 97,000 crore under option 1 to Rs 1,10,000 crore.

*With inputs from agencies.