Brief Context
In News In October 2025, India’s GST collections rose to ₹1.95 lakh crore, a 4.6% increase over the previous year, driven partly by Diwali-related spending. What is the Goods and Services Tax (GST)? The GST refers to India’s indirect tax regime, introduced in 2017.
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Syllabus: GS3/Economy
In News
- In October 2025, India’s GST collections rose to ₹1.95 lakh crore, a 4.6% increase over the previous year, driven partly by Diwali-related spending.
What is the Goods and Services Tax (GST)?
- The GST refers to India’s indirect tax regime, introduced in 2017.
- It is a destination-based tax on the consumption of goods and services.
- It is levied at every stage of production and distribution, but tax is charged only on the value added at each stage, with credits available for taxes paid earlier.
- Ultimately, the final consumer bears the tax, and revenue goes to the authority where the goods or services are consumed (place of supply).
Benefits
- The introduction of GST marks a major indirect tax reform in India by unifying multiple Central and State taxes into a single system, reducing tax cascading and fostering a common national market.
- It lowers the overall tax burden on goods, enhances competitiveness of Indian products both domestically and globally.
- It is expected to boost economic growth and it may increase revenues for both Centre and States through a broader tax base, higher trade volumes, and better compliance.
- Its transparency also simplifies administration.
Issues
- Revenue Shortfalls: According to PRS Legislative Research, GST revenues remain below pre-GST levels, with the GST-to-GDP ratio falling from 6.5% in 2015–16 to 5.5% in 2023–24.
- State-Level Disparities: Industrial and service-driven states—Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Haryana—accounted for over 40% of the total revenue.
- However, 20 states and UTs saw a contraction in GST receipts.
- While most states experienced declines, five northeastern states—Mizoram, Nagaland, Sikkim, Meghalaya, and Manipur—improved their tax-to-GSDP ratios, whereas Punjab, Chhattisgarh, Karnataka, Madhya Pradesh, and Odisha saw the steepest drops.
- Complex Rate Structure: Despite slab rationalisation, classification disputes and high rates on select goods persist.
- Post-Compensation Challenges: The end of GST compensation has reignited concerns over fiscal autonomy for states.
Conclusion and Way Ahead
- GST continues to be a foundational pillar of India’s economic reform, but realising its full potential requires addressing key structural challenges.
- This includes simplifying the tax structure through rate rationalisation and fewer exemptions, strengthening state revenues via improved SGST mechanisms and equitable sharing, enhancing enforcement through digital and AI-driven compliance tools, and reinforcing the institutional capacity of the GST Council for effective decision-making and dispute resolution.
Source :IE