Goods and Services Tax (GST) — India's Tax Reform

What Is GST?

GST is a comprehensive, multi-stage, destination-based indirect tax levied on every value addition in the supply chain. It replaced multiple cascading taxes (excise duty, service tax, VAT, CST, octroi, entry tax, luxury tax, etc.) with a single unified tax.

"One Nation, One Tax, One Market"

Constitutional Framework

Key Articles Inserted by 101st Amendment

GST Council (Article 279A)

Union of India v. Mohit Minerals (2022): The Supreme Court held that GST Council's recommendations are not binding on Centre or States — they are persuasive. This preserves cooperative federalism.

GST Structure

Types of GST

Example: A Rs. 100 product sold within Maharashtra at 18% GST → 9% CGST (to Centre) + 9% SGST (to Maharashtra). If sold from Maharashtra to Gujarat → 18% IGST (collected by Centre, consuming state's share transferred to Gujarat).

GST Rate Slabs

Original Structure (2017–2025)

GST 2.0 Reforms (Effective 22 September 2025)

Major simplification — merged from 5 slabs to 4 slabs:

Input Tax Credit (ITC)

The backbone of GST — eliminates cascading (tax-on-tax) effect.

• ITC allows a business to claim credit for GST paid on inputs (raw materials, services) against the GST collected on output (sales)
• Only available for registered taxable persons
• Conditions: Must have a valid tax invoice; goods/services must be used for business purposes; supplier must have filed returns
• Inverted duty structure — when input tax rate > output tax rate, taxpayer can claim refund

GST Compensation Cess

• Purpose: Compensate states for revenue loss due to GST implementation
• Duration: 5 years (2017–2022); extended to March 2026 to repay borrowings made during COVID-19
• Base year: 2015-16 revenue with 14% annual growth guaranteed
• Levied on: Luxury and sin goods (tobacco, aerated drinks, motor vehicles, coal)
• Issue: Centre borrowed Rs. 2.69 lakh crore on behalf of states during COVID; cess continues to repay this

GST Registration and Compliance

Taxes Subsumed Under GST

Central Taxes Subsumed

• Central Excise Duty
• Additional Duties of Excise
• Service Tax
• Additional Customs Duty (CVD)
• Special Additional Duty of Customs (SAD)
• Central surcharges and cesses related to supply of goods and services

State Taxes Subsumed

• State VAT
• Central Sales Tax (CST)
• Purchase Tax
• Luxury Tax
• Entry Tax / Octroi
• Entertainment Tax (except those levied by local bodies)
• Taxes on advertisements, lotteries, betting, gambling

Impact of GST

Positives

• One market — eliminated inter-state barriers, reduced logistics costs
• Reduced cascading — ITC mechanism ensures tax only on value addition
• Improved compliance — digital trail through GSTN
• Revenue buoyancy — GST collections crossed Rs. 2 lakh crore/month in FY26
• Formalisation — more businesses brought into the tax net
• Consumer benefit — lower prices for many goods due to eliminated cascading

Challenges

• Complexity for small businesses — multiple returns, technology adoption
• Petroleum exclusion — biggest revenue item still outside GST
• Compensation cess extension — created fiscal strain
• Rate rationalisation — frequent changes create uncertainty
• Inverted duty structure — refund delays for exporters and certain sectors

Important for UPSC

Prelims Focus

• GST launched on 1 July 2017; 101st Amendment; Article 279A (GST Council)
• GST Council: FM is Chair; Centre 1/3rd vote, States 2/3rd; decisions by 3/4th majority
• Types: CGST, SGST, IGST, UTGST
• Items outside GST: petroleum, alcohol, electricity
• GST 2.0 (2025): simplified to 0%, 5%, 18%, 40%
• Compensation Cess: 5-year guarantee at 14% growth

Mains GS-3 Dimensions

• GST as a tool for cooperative federalism — has it strengthened or weakened state autonomy?
• Why should petroleum be brought under GST? Arguments for and against
• Impact of GST on the informal sector and MSMEs
• GST 2.0 rate rationalisation — is simplification sufficient?
• Mohit Minerals judgment (2022) — implications for Centre-State fiscal relations

Interview Angles

• "Has GST achieved 'One Nation, One Tax'?"
• "Why are some states reluctant about GST?"
• "How would you bring petroleum under GST?"

Previous Year Questions (PYQs)

Prelims

Q. What is/are the most likely advantages of implementing 'Goods and Services Tax (GST)'? (CSE Prelims 2017)

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. (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3 Answer: (a)

Q. Consider the following items: (CSE Prelims 2018)

1. Cereal grains hulled
2. Chicken eggs cooked
3. Fish processed and canned
4. Newspapers containing advertising material Which of the above items is/are exempted under GST (Goods and Services Tax)? (a) 1 only (b) 2 and 3 only (c) 1, 2 and 4 only (d) 1, 2, 3 and 4 Answer: (c)

Q. Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)? (CSE Prelims 2017)

1. It decides the RBI's benchmark interest rate.
2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
3. It functions under the Chairmanship of the Union Finance Minister. (a) 1 only (b) 1 and 2 only (c) 3 only (d) 2 and 3 only Answer: (a)

Mains

Q. Discuss the rationale for introducing Goods and Services Tax in India. Bring out critically the reasons for the delay in roll out for its regime. (CSE Mains 2013, GS Paper 3, 15 marks)

Q. 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. (CSE Mains 2019, GS Paper 3, 10 marks)

Q. 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? (CSE Mains 2020, GS Paper 3, 15 marks)

Current Affairs Connect

Link these static concepts with live developments:

Exam tip: After every GST Council meeting, note key rate changes and new items included/excluded. Read Ujiyari's economy coverage — GST Council decisions are the single most asked economy current affairs topic.

Sources: GST Council, 101st Amendment — PRS India, PIB — Economic Survey 2025-26, Mohit Minerals judgment — SCI