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Subject: GST

  • Nine Years of GST (2017 to 2026)

    Why in News?

    India completed 9 years of GST on 1 July 2026. The government highlighted the impact of GST 2.0 (2025 reforms) in simplifying taxation and improving compliance.

    GST at a Glance

    • Introduced on 1 July 2017 under the 101st Constitutional Amendment Act, 2016.
    • Destination based tax on the supply of goods and services.
    • Replaced 17 taxes and 13 cesses under the One Nation, One Tax framework.

    Constitutional Provisions

    • Article 246A: Power to levy GST.
    • Article 269A: IGST on inter-State supplies.
    • Article 279A: GST Council.

    GST Council

    • Constitutional body promoting cooperative federalism.
    • Chaired by the Union Finance Minister.
    • Recommends tax rates, exemptions and GST policies.

    GST 2.0 (2025)

    • Simplified rate structure with 5% and 18% as primary slabs.
    • 40% GST on luxury and sin goods.
    • Faster registration, refunds and simplified return filing.

    MSME Support

    • Registration threshold increased to ₹40 lakh.
    • Composition Scheme limit raised to ₹1.5 crore.
    • QRMP Scheme for taxpayers with turnover up to ₹5 crore.

    Digital Reforms

    • GSTN, e-Invoicing and AI-driven analytics.
    • Automated ITC matching and pre-filled returns.
    • Better compliance and fraud detection.

    Performance

    • GST taxpayers: 66.5 lakh (2017) → 1.65 crore (May 2026).
    • GST collections: ₹7.4 lakh crore (2017-18) → ₹22.27 lakh crore (2025-26).

    [2017] What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’?
    1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
    2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.
    3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.
    Select the correct answer using the code given below:

    [A] 1 only

    [B] 2 and 3 only

    [C] 1 and 3 only

    [D] 1, 2 and 3

  • Discuss the rationale for introducing Goods and Services Tax (GST) in India. Bring out critically the reasons for the delay in roll out for its regime.

  • Enumerate the indirect taxes which have been subsumed in the goods and services tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India since July 2017.

    The Goods and Services Tax (GST), implemented on 1 July 2017, unified India’s fragmented indirect tax system into a single, destination-based tax, aimed at creating a ‘one nation, one tax’ System.

    Indirect Taxes Subsumed under GST

    Revenue Implications of GST Since July 2017

    Rising Revenue Collections – Eg – Average monthly collections rose from to .

    Formalisation – E-invoicing, ITC matching and GSTN integration improved compliance, pushing MSMEs into the formal economy

    Reduction in Cascading – Unified tax with seamless input credit reduced the tax-on-tax effect, improving supply-chain efficiency and indirectly boosting revenues.

    Support for Manufacturing: Correcting inverted duty structures enhances domestic value addition, strengthens export competitiveness, and boosts revenue.

    Ease of Compliance – lower rates under GST 2.0 combined with better compliance can increase GST collections in the medium term.

    Challenges

    Post GST 2.0 revenue shortfall of . Due to reduced rates and zero-rating of many goods.

    PRS Report– the aggregate revenue under GST has declined from 6.5% of GDP in 2015-16 to 5.5% of GDP in 2023-24. (below the 7% GST-to-GDP ratio projected by the 15th FC)

    Initial Revenue Volatility – States faced shortfalls despite compensation, indicating

    High Compliance Burden – Multiple monthly, quarterly, and annual returns, e-invoicing, and ITC reconciliation increase administrative load, especially for SMEs.

    State Revenue Concerns – Dependence on compensation cess and delays in payments strain state finances

    Evasion and fraud through fraudulent activities like fake invoices persist.

    Nearly half of the economy remains outside the GST framework. Eg- petroleum products, real estate, and electricity duties are excluded from GST.

    For higher, predictable and efficient revenue generation, the need is to

    Include petroleum and electricity under the GST

    Anti-Evasion Measures: Eg- Utilizing advanced data analytics

    Bring emerging sectors- crypto-assets, carbon credits under GST

  • Explain the rationale behind the Goods and Services Tax (Compensation to States) Act of 2017. How has COVID-19 impacted the GST compensation fund and created new federal tensions?

    The GST, implemented on 1 July 2017, unified India’s fragmented indirect tax system into a single, destination-based tax, aimed at creating a ‘one nation, one tax’ System.

    Rationale behind the GST (Compensation to States) Act, 2017

    GST subsumed major state taxes (VAT, entry tax, octroi). To prevent short-term revenue loss, the Act assured 14% annual revenue growth for 5 years (2017-22).

    Addressing Loss of Fiscal Autonomy – Compensation ensured states’ fiscal stability during structural shifts.

    Cooperative Federalism- States agreed to adopt GST in exchange for legal assurance of compensation from the Centre.

    Creating Predictability in Budgeting – Guaranteed revenue helped states plan welfare schemes, salaries, and capital projects without fear of instability.

    Compensation Fund Mechanism- A dedicated GST Compensation Cess (on luxury/sin goods like tobacco, coal, automobiles) was created to finance the compensation pool.

    Impact of COVID-19 on the GST Compensation Fund

    According to the 41st GST Council meeting, states projected a for 2020-21. With an estimated , the shortfall in the GST compensation fund was expected to be .

    was due to GST implementation-related revenue gaps, and

    was attributed to the COVID-19-induced economic shock

    The Centre admitted an unprecedented shortfall, stating it could not fully compensate states from the fund.

    Borrowing Controversy

    The Centre asked states to borrow via RBI under two options.

    Many states (Kerala, Punjab, Chhattisgarh) argued that the borrowing burden should lie with the Centre, not states.

    Breakdown of Consensus in GST Council – For the first time since 2017, the Council saw voting instead of consensus. States alleged weakening of cooperative federalism.

    Increased Fiscal Stress on States – Shortfalls forced states to cut capital expenditure, delay welfare payments, and increase market borrowing.

    States demanded extending the compensation period beyond June 2022 due to pandemic losses

    Strengthening the fiscal framework, improving tax buoyancy, and enhancing transparency in compensation mechanisms are essential to restore trust in India’s cooperative federalism.

  • Consider the following

    Consider the following:
    1. Fringe Benefit Tax
    2. Interest Tax
    3. Securities Transaction Tax
    Which of the above is/are Direct Tax/Taxes ?

  • Consider the following statements

    Consider the following statements:
    In India, taxes on transactions in Stock exchanges and futures markets are
    1. levied by the Union
    2. Collected by the States
    Which of the statements given above is/are correct?

  • Consider the following statements

    Consider the following statements :
    1. Tax revenue as a percent of GDP of India has steadily increased in the last decade.
    2. Fiscal deficit as a percent of GDP of India has steadily increased in the last decade.

    Which of the statements given- above is/are correct ?

  • Consider the following statements

    Consider the following statements:
    Statement I:
    In India, income from allied agricultural activities like poultry farming and wool rearing in rural areas is exempted from any tax.
    Statement II:
    In India, rural agricultural land is not considered a capital asset under the provisions of the Income-tax Act, 1961.
    Which one of the following is correct in respect of the above statements?

  • Which of the following is not a recommendation of the task force on direct taxes under the chairmanship of Dr Vijay L. Kelkar in the year 2002

    Which of the following is not a recommendation of the task force on direct taxes under the chairmanship of Dr Vijay L. Kelkar in the year 2002?

  • In India, the tax proceeds of which one of the following as a percentage of gross tax revenue has significantly declined in the last five years

    In India, the tax proceeds of which one of the following as a percentage of gross tax revenue has significantly declined in the last five years?