The GST revenue shortfall faced by the states is likely to come down with the improved collections in the last few months, Finance Secretary Ajay Bhushan Pandey said on Tuesday.
He said the Budget proposal of taxing interest on employee contributions to provident fund over Rs 2.5 lakh per annum is aimed at correcting anomalies and is based on “principles of equity” and large depositors into the Employee Provident Fund (EPF) should pay tax on assured 8 per cent return.
According to the Budget, interest on employee contributions to provident fund over Rs 2.5 lakh per annum would be taxed from April 1, 2021.
Pandey said people with less than Rs 25 lakh annual income can continue to deposit 12 per cent into the EPF without paying any tax.
“There were anomalies in the system … There are some cases which are depositing crores of rupee into the fund and there you are getting 8 per cent assured tax-free return. This is a question of equity. This is against the Principles of Equity. If you have surplus money, you invest, but you have to pay tax,” Pandey told PTI.
Less than 1 per cent of the total six crore EPFO subscribers actually contribute more than Rs 2.5 lakh in the fund.
Pandey said the Budgeted 16.67 per cent growth in tax revenue is realistic and the pre-filled income tax return forms with details on interest from bank and Post Office, capital gains on listed securities and dividend income would be made available next fiscal.
“In this year, even though we have shown some improvement in the last few months, but for 14 per cent y-o-y GST revenue growth there will be a compensation gap. Next year also there will be a compensation gap. But with the improved collection, compensation gap would be there but it would be lower than what was being anticipated a few months back,” he said.
January was the fourth straight month of over Rs 1 lakh crore tax collections, which is a sign of strong recovery.
The GST collections surged to an all-time high of about Rs 1.20 lakh crore in January, while the second-best was in December 2020 at over Rs 1.15 lakh crore.
The collections, which directly reflect the state of economic activity, had plummeted to a record low of Rs 32,172 crore in April 2020, after the government imposed a nationwide lockdown to curb the spread of coronavirus.
The sharp decline in GST collections has led to Rs 1.80 lakh crore shortfall in GST revenues on states. This includes Rs 1.10 lakh crore revenue loss on account of GST implementation and Rs 70,000 crore on account of COVID-19 pandemic.
The Centre had set up a special window to borrow funds and pass on to the states for meeting the Rs 1.10 lakh crore GST revenue loss.
“This year a decision was taken to borrow a part of gap through the special window and pass it on to the states. Now for next year, let us see when a decision is taken,” Pandey added.