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Highlights of the 43rd GST Council meeting

1. The 43rd GST Council meeting ended with no unanimity on the borrowing issue. Hence, no conclusion was reached. The states may go ahead with borrowing funds as per the options previously given.

2. The levy of compensation cess will continue beyond the 5-year period, as was announced in the 42nd GST Council meeting.

3. The centre will not be able to borrow funds to meet the compensation cess shortfall as this will result in an increase in the yield on G-sec bonds.

4. The Finance Minister explained that the Centre has issued a borrowing calendar, and if it goes beyond it to borrow, the G-Sec deals used as a benchmark for every other borrowing will go up. This will increase the borrowing costs for states and the private sector as well.

Expectations from the 43rd GST Council meeting

The 42nd GST Council meeting took place on 5th October 2020. The meeting was held for the states to finalise one of two options given to them by the GST council, to meet the compensation cess shortfall. 

Option I – The Centre will facilitate an amount of Rs 97,000 crore to the states as borrowings, through a special window by the Reserve Bank of India (RBI). This borrowing is to be repaid after a period of five years, along with a reasonable rate of interest.

Option II- The states can borrow the entire shortfall of Rs.2.35 lakh crore directly from the RBI.

These options were announced in the 41st GST Council meeting held on 27th August 2020. The states were given seven days to evaluate and confirm one of the options that they were going ahead with. However, the 42nd Council meeting got pushed to 5th October. A few of the states decided to go ahead with option 1 or 2 as laid down by the Council, but other states such as Delhi, Punjab, Rajasthan, Chhattisgarh, Tamil Nadu, Jharkhand, Telangana, Puducherry, Kerala and West Bengal were not in favour of either.

In the 42nd GST Council meeting, the GST Council agreed to increase the borrowing limit under Option 1 to Rs.1.10 lakh crore based on a 7% revenue growth rate, as against the previously decided 10% growth rate, which amounted to Rs.97,000 crore. However, even after an almost 8-hour long meeting, the Council failed to reach a consensus on the whole borrowing issue.

Today, the GST Council will meet again to decide on a solution that is feasible and acceptable to all the states. If not, the Council will need to go in for voting amongst its members to finalise an option.

 

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