Govt clears GST amendments, states to be compensated for 5 yrs

Modalities for levy of 1% tax over and above the GST rate by states as well as the 'band' rate will be finalised soon

The Cabinet today approved amendments to the GST bill to compensate states for revenue loss for five years on introduction of the uniform nationwide indirect tax regime, as has been suggested by Rajya Sabha Select Committee.

The Union Cabinet, chaired by Prime Minister Narendra Modi, this evening agreed to the recommendation made by the Select Committee on compensation to states to win over support of regional parties like TMC of West Bengal and Odisha's BJD in getting the landmark Constitution Amendment approved by the Upper House where the ruling NDA does not have a majority.

The Cabinet decided that the modalities for levy of 1% tax over and above the GST rate by states as well as the 'band' rate would be finalised while framing the rules, sources said.

The Rajya Sabha Select panel, headed by BJP's Bhupender Yadav, in its report last week suggested GST rate to be no more than 20% and levy of 1% additional tax by states only on actual sales and not on inter-company stock or inventory transfer.

The Constitution Amendment Bill for a Goods and Service Tax (GST), to replace all indirect taxes like excise and sales tax on all products, except alcohol, has already been passed by the Lok Sabha and is pending passage in the Upper House.

The amendment approved by the Cabinet on compensation seeks to give an assurance to states for making up for revenue loss they may suffer in first five years of introduction of GST.

Government plans to roll out GST from April 1, 2016, a very tight schedule considering the fact that the Bill has to be approved by Rajya Sabha and half of the 30 states.