States will receive provisional compensation from Centre for loss of revenue from implementation of GST every quarter but the final annual number would be decided after an audit carried out by CAG.The compensation would be met through levy of a cess called ‘GST Compensation Cess’ on luxury items and sin goods like tobacco, for the first five years.Any excess amount after the end of five year tenure in the ‘GST Compensation Fund’ so created, would be divided between Centre and states, said the draft GST compensation law made public by the Centre today.

The loss of revenue to a state will be the difference between the actual realisation to a state under Goods and Services Tax (GST) regime and the tax revenue it would have got under the old indirect tax regime after considering a 14 per cent increase over the base year of 2015-16.The Council, at its earlier meetings, decided on a 4-tier GST tax structure of 5, 12, 18 and 28 per cent. Luxury items and demerit goods would be taxed at the highest rate and would also attract a cess to create a Rs 50,000 crore corpus for compensating states for loss of revenue.

The GST council in its earlier meetings had decided on a four-tier tax slab under the new indirect tax. While essential commodities like food grains will be exempted, the other slabs are 5%, 12%, 18% and 28%. The cess will be applicable above the 28% tax on luxury goods, aerated drinks and tobacco products.