(1) With effect from such date as each State Government may, by notification in the Official Gazette, appoint in this behalf, there shall be established for the purposes of this Act, a special Fund to be called the "State Compensatory Afforestation Fund-......... (name of State)" under public accounts of such State:
     Provided that in case of Union territory having no legislature, such fund shall be established under the public account of Union of India with effect from such date as the Union territory Administration may, by notification in the Official Gazette, appoint in this behalf.
     (2) The State Fund in each State shall be under the control of the State Government of such State and managed by the State Authority of such State, in such manner as may be prescribed.
     (3) There shall be credited into the State Fund of a State—
         (i) the unspent balance of all monies which has been transferred by ad hoc Authority to the State Compensatory Afforestation Compensatory Afforestation Funds Management and Planning Authority constituted in such State in compliance of guidelines dated the 2nd July, 2009;
         (ii) all monies transferable from the National Fund under clause (a) of section 5;
         (iii) all monies realised from user agencies by such State towards compensatory afforestation, additional compensatory afforestation, penal compensatory afforestation, net present value, catchment area treatment plan or any money for compliance of conditions stipulated by the Central Government while according approval under the provisions of the Forest (Conservation) Act, 1980 (69 of 1980); and
         (iv) the funds recoverable from user agencies by such State in cases where forest land diverted falls within the protected areas, that is, areas notified under sections 18, 26A or 35 of the Wild Life (Protection) Act, 1972 (53 of 1972) for undertaking activities relating to the protection of biodiversity and wildlife.
     (4) A State Government may also credit to the State Fund constituted by it—
         (i) grants-in-aid received, if any, by the State Authority;
         (ii) any loan taken or any borrowings made by the State Authority;
         (iii) any other sums received by the State Authority by way of benefaction, gift or donations.
     (5) The monies received in the State Fund shall be an interest bearing fund under public accounts.
     (6) The balance in each State Fund shall be non-lapsable and get interest as per the rate declared by the Central Government on year to year basis.