The Centre has presented two options at the GST Council<\/a> for borrowing by States to meet an estimated GST compensation shortfall of \u20b92.35 lakh crore this year. A decision will be taken after seven days.<\/p>\n Also read: Centre unable to pay GST dues to States: Union Finance Secretary<\/a><\/strong><\/p>\n The revenue gap is due to the impact of the COVID-19 pandemic, which is an \u201cact of God\u201d that may lead to economic contraction, Finance Minister Nirmala Sitharaman said after the meeting on August 26. \u201cThe Compensation Act did not foresee an act of God,\u201d she added, refusing to quantify the percentage of the possible economic contraction.<\/p>\n The Goods and Services Tax (Compensation to States) Act, 2017 provides States with a guarantee that they will be paid for any loss of revenue in the first five years of GST implementation, until 2022. The Centre is legally obligated to pay States if revenues fall below the 14% annual growth in GST collections, using a base year of 2015-16. The money comes from a compensation cess levied on sin and luxury goods.<\/p>\n Also read: Centre morally bound to compensate States for GST shortfall: Sushil Modi<\/a><\/strong><\/p>\n Both GST revenues and compensation cess collections have been falling over the last year due to the economic slowdown, exacerbated by COVID-19. In 2019-20, the Centre paid compensation of \u20b91.65 lakh crore to States, although the cess collected during the year was only \u20b995,444 crore.<\/p>\n After the last meeting of the GST Council, the Centre had sought a legal opinion from the Attorney General, who said that the Centre was obligated to pay the full shortfall from the cess fund, and it was not possible to borrow from the Consolidated Fund of India.<\/p>\n