The finance ministry on Tuesday said it has released Rs 86,912 crore to clear all the Goods and Services Tax (GST) compensation dues till May 31.

“This decision has been taken despite the fact that only about Rs 25,000 crore is available in the GST Compensation Fund. The balance is being released by the Centre from its own resources pending collection of cess,” the ministry said in a statement.

The release of compensation was taken to “assist the states in managing their resources and ensuring that their programmes especially the expenditure on capital is carried out successfully during the financial year”, the ministry added.

Now, the states are only owed compensation under the GST regime for one month — June, the ministry noted. States had been guaranteed a certain level of revenue for the first five years of the GST regime that was launched in 2017.

Of the Rs 86,912 crore released to states, Rs 47,617 crore worth of compensation was due up to January, Rs 21,322 crore was due for February-March and Rs 17,973 crore was due for April-May.

Citing an inadequate balance in the GST compensation cess account, the ministry had said the pending amount will be released “as and when amount from cess accrues in the compensation fund”. The compensation cess is levied over and above the peak 28 per cent GST rate on luxury or ‘sin’ goods, including cars.

“The states’ protected revenue has been growing at 14 per cent compounded growth whereas the cess collection did not increase in the same proportion, (and) Covid-19 further increased the gap between protected revenue and the actual revenue receipt, including reduction in cess collection,” the ministry said.

In a bid to meet the resource gap of the states due to shortfalls in compensation cess accruals, the Centre

had borrowed and released Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 as back-to-back loans for states to meet part of the shortfalls.

GST was introduced in the country w.e.f. 1 July, 2017 and the 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. 1 July, 2017.

Centre says

• Centre gives Rs 86,912 crore to states

• GST compensation fund has Rs 25,000cr

• Balance released by Centre from own resources pending collection of cess