I-GST panel finalises plan to address “negative balance” issue

The government has kick-started a review of the integrated goods and service tax (I-GST) settlement mechanism, in view of the complaints received from several state governments that they are being deprived of their due I-GST shares, resulting in massive revenue losses.

A newly formed committee, comprising both central and state officials, to review the issue of “negative balance” under I-GST floating pool, held its first meeting on Friday and discussed a road map to address it, a senior official told FE.

“We’re currently analysing which states have received more IGST transfers from Centre, and which have received less,” the official said. “In a series of four-five meetings we would analyse how much amount has to be the Centre, if there is such a case,” the person added.

The committee has members of around 10 states, including Tamil Nadu and Kerala, who have repeatedly raised the issue of less than required IGST transfers from the Centre. The committee is expected to compile a report regarding these transfers by October 30, and submit it to the GST Council for perusal.

Earlier this month, Finance Minister Nirmala Sitharaman had said in post-GST Council presser that the Centre-State body has decided to set up a committee under the chairmanship of the additional secretary of revenue to study the IGST mechanism and assess how excess transfers to some state can be recovered. “A lot of balance has to be retrieved from (some) states, who had been given excess IGST given over the period (of several years),” the FM had said.

IGST is a tax levied on the supply of goods and services during interstate transactions and on imports. It is governed by the IGST Act, and the tax is collected by the central government. Post which, the IGST is divided between the state and central governments, in a ratio of 50:50.

Since it’s a consumption based tax, states where the consumption of the goods/services (post inter-state transactions) takes place get the tax transfer, also called settlement. However, in case of discrepancy in the settlement process, some states may get disproportionately higher transfer, while others may suffer. For instance, a higher transfer by the Centre than what it receives is reflected as the “negative balance”–which has to be retrieved from states.

According to data on the Controller General of Accounts, in April-July of FY25, the Centre’s IGST collections stood at Rs (-)10,659 crore. Last year, during the same period, the collections were Rs (-)9,144 crore. In the entire FY24, IGST mop-up was Rs (-)5,026 crore.

Earlier this year, however, some states such as Tamil Nadu and Kerala said that they have received a fairly low amount of IGST transfers from the Centre than they should ideally have. A recent report of the State Fiscal Review Committee of the Kerala government noted that the state has incurred an estimated Rs 35,000 crore loss in IGST settlement since the inception of the GST regime in 2017. This is despite the theoretical assumption that “consumption states” like Kerala would be the biggest beneficiaries of GST.