Highlights of 41st GST Council Meeting dated 27th August, 2020

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The 41st GST council meeting was held on 27th of August, 2020 under the chairmanship of Finance minister Smt. Nirmala Sitharaman through video conferencing on a whole and sole agenda of resolving the issue of compensation deficit for states. Where the Finance minister Smt. Nirmala Sitharaman strongly said that “we are trying to facilitate the state.” and the discussion went on on the same topic.

The main outcome of 41st GST council meeting was that the states were given two options for revenue compensation under Indirect Tax Regime. As the States have been asking the Finance Ministry to release the compensation in a timely manner but even the center’s financial position along with GST CESS Collections have been hit hard due to COVID-19 Pandemic and back to back lock downs. What are the two options and what else was decided in the meeting, let us have a look on the highlights of the 41st GST Council meeting.

Two options Given to the states for the compensation:

1st Option: To provide a special borrowing window to states, in consultation with the RBI, to provide Rs 97,000 crore at a “reasonable” interest rate and this money can then be repaid after 5 years by extending cess collection.

2nd Option: To meet the entire GST compensation gap of Rs 2.35 lakh crore this year itself after consulting with the RBI.

• In both options, the central Government will facilitate states for borrowing from the RBI.
• Both options are given for this year only.
• The rate of interest will be the same in all states.
• In both the options there shall be no burden on states as the Finance Ministry has asked RBI to facilitate the loan.
• The repayment mechanism and cycle will be decided only after the option is selected by the states. It could be either extension of year, could be higher rates of cess on sin goods.

Relaxation in FBRM for the states:

• The Finance minister further gave the states 0.5 relaxations in FRBM if the sates decide to borrow on their own, without the conditions of completing the tasks under Atmanirbhar Bharat program.

• That means the Center is willing to offer 0.5 percent further relaxation in FRBM for state borrowings i.e. 3.5 percent can become 4 percent. Which is an incentive to states to borrow from the market and an unconditional relaxation for enhanced state borrowing

However, to think upon the options given, the state government has asked for the 7 days time. Whereas nothing relating to the increase in the tax rates were discussed in the 41st GST council meeting.

Hope this article was helpful. Refer to the topics discussed in the 40th GST Council meeting

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