Changes to GST Compensation Fund Allocation

The GST Compensation Bill, recently introduced in Parliament, has modified the regulations for revenue distribution during the initial five years following GST implementation. These revisions now favor the Central government. Previously, the model law had a slight inclination towards states, stipulating that 50% of the compensation fund’s residual balance after five years would be shared between the Centre and states. The remaining portion was to be disbursed to states based on their revenues in the final year of the transitional period.

However, the bill presented in the Lok Sabha streamlines this approach, establishing an equal revenue-sharing mechanism between states and the Central government. This new arrangement results in a larger allocation of funds to the Centre compared to previous provisions.

This adjustment was reported by the Economic Times.