Compensation to States :
To enable Central Government to pay the compensation, a GST Compensation Cess is proposed to be levied on supply of goods or services or both within India and also on import of goods and services.
Sections 3 to 7 of GST Cess Act provide for mode of calculating compensation payable to States.
Section 3 of GST Cess Act states that 14% per annum shall be considered as projected nominal growth of revenue of States. This will be calculated at compounded rates as per formula given in section 6 of GST Cess Act.
Section 4 of GST Cess Act states that financial year 2015-16 will be considered as base year.
Section 5 of GST Cess Act provides for calculation of base year revenue of each State.
Section 6 of GST Cess Act states that projected revenue for any year in a State will be calculated by applying the projected growth rate over the base year revenue of that State.
Illustration—If the base year revenue for 2015-16 for a concerned State, calculated as per section 5 is one hundred rupees, then the projected revenue for financial year 2018-19 shall be as follows—
Projected Revenue for 2018-19-100 (1+14/100)3
Section 7 of GST Cess Act provides for calculation and release of compensation to States.