A truck driver removes tarpaulin from the back of a truck at the Bara Bazar market in Shillong. (Photographer: Sanjit Das/Bloomberg)

Government To Share Unclaimed IGST Between Centre And States

The government will share unclaimed and unsettled integrated Goods and Services Tax collections between the Centre and states.

The central government has been given powers to provisionally settle the IGST collected in a financial year as per recommendations of the GST Council, the government said in a notification today. The settlement will be adjusted in subsequent months based on returns filed by the taxpayers, the notification added.

The government has collected about Rs 1.8 lakh crore in the IGST account, as of April. Of this, about Rs 90,000 crore is in the credit ledger of taxpayers, meaning it would be utilised by them to pay Central GST or State GST liabilities in future.

This is not the first instance when the Centre will share unclaimed and unsettled IGST proceeds with the states. In January this year, the GST Council decided to split Rs 35,000 crore between states and the Centre after some state finance ministers raised concerns regarding IGST funds lying idle in government coffers instead of being used for developmental purposes.

According to government’s own analysis, about Rs 5,000 crore gets added in the IGST fund every month post settlement to states.

Settlement of IGST is done based on the place where a product is consumed. By the end of every month, the consuming state gets half the GST collected while the central government gets the rest as CGST.

The government had also constituted a panel to look into issues related to devolution of balance in IGST accounts post settlement to states. The panel met on May 29, and was chaired by Finance and Revenue Secretary Hasmukh Adhia.

Why Are Funds Lying Idle?

Under the current mechanism, certain taxpayers are ineligible to avail input tax credit. For instance, companies part of certain industries such as oil & gas, are not allowed to claim input tax credit on IGST despite having paid GST. In such instances, the settlement would be done between the state and central governments based on the place of consumption or purchase. In these cases, settlement between states and Centre cannot be done since the GSTR-3B returns do not have a provision to specify place of supply. This facility was available in GSTR-2 returns filing which was deferred by the government.

The GSTR-3B returns filed by purchasing taxpayers do not have the provision for mentioning the place of supply of credits disclosed, said Abhishek Jain, an indirect tax partner at EY India. This could be one possible reason holding back the final IGST settlement amongst state and the central governments.