GST Compensation Dues: What States Got and What’s Next
This update from the Finance Ministry ends years of speculation about pending dues and opens the door for a new mechanism to support state revenues post-compensation cess.To ease this, the Centre promised a five-year compensation for any shortfall in their annual revenue growth, calculated at 14% from a 2015–16 base year.
Final Compensation Status: Who’s Still Waiting?
According to a written reply tabled in Parliament on 22 July 2025, the Ministry of Finance confirmed:
- ⏳ Only Arunachal Pradesh and Manipur are pending — due to non-submission of AG (Accountant General) certificates.
- 🧾 These audited figures are mandatory for releasing final instalments, as per procedure.
What Happens After the Cess Period Ended?
The 5-year period ended in June 2022, and the cess is no longer active for revenue compensation (though collections continue till 2026 to repay loans). This left states without a guaranteed buffer, raising concerns about fiscal pressure.
To address this:
- The GST Council in its 54th meeting (9 Sept 2024) constituted a Group of Ministers (GoM) chaired by the Union MoS Finance.
- This GoM will explore new fiscal support mechanisms for states in the post-compensation era.
Will GST Rates Come Down Anytime Soon?
In a separate update, the Ministry clarified in Lok Sabha that:
- 📄 The long-awaited rate rationalisation report by another GoM (constituted in the 45th GST Council Meeting, Sept 2021) is still pending.
- ⚖️ Without the report, any discussion on rate revisions “does not arise,” as per Minister Pankaj Chaudhary.
Expert Insight: What States Should Do Now
Practical Tip from Efiletax
States should fast-track AG certificate submissions and prepare for a post-compensation fiscal strategy. Without cess, internal revenue mobilisation and Centre-state fiscal coordination will be crucial. Businesses should also brace for rate tweaks once the rationalisation report drops — possibly leading to fewer GST slabs and less classification confusion.
Summary
The Centre has released all GST compensation dues for July 2017–June 2022, except for Arunachal Pradesh and Manipur, pending AG certificates. The GST Council has set up a GoM to explore post-cess support mechanisms. No GST rate cuts expected yet.
FAQs
Q1. What is GST compensation?
It’s a payment made by the Centre to states for revenue loss post-GST rollout, funded through a cess on luxury/sin goods.
Q2. Why are dues pending only for Arunachal and Manipur?
Because the AG-certified audited revenue data from these states hasn’t been submitted yet.
Q3. Is the compensation cess still being collected?
Yes, but only to repay loans taken for past compensation shortfalls during the pandemic years.
Q4. Will GST rates be reduced soon?
Unlikely in the near term, as the rate rationalisation report from the GoM is still pending.
Q5. What’s the future of Centre-state revenue sharing under GST?
The GST Council is working on alternatives via a new Group of Ministers to maintain fiscal balance after the end of the compensation period.
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