Goods and Services Tax (GST)
Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services across India. It replaced multiple central and state indirect taxes to create a unified, destination-based taxation system.
GST was introduced through the 101st Constitutional Amendment Act, 2016 and implemented from 1 July 2017.
Core Features of GST
- Destination-based tax where revenue accrues to the state of consumption
- Dual model allowing concurrent taxation by Centre and States
- Subsumed taxes such as VAT, Excise Duty, Service Tax and Entry Tax
- Eliminates cascading effect through Input Tax Credit (ITC)
- Technology-driven compliance system
Components of GST
- CGST: Levied by the Centre on intra-state supplies
- SGST: Levied by States on intra-state supplies
- UTGST: Levied in Union Territories without legislature
- IGST: Levied by the Centre on inter-state supplies and later apportioned
Objectives
- Create a common national market
- Improve ease of doing business
- Increase tax compliance
- Strengthen cooperative fiscal federalism through the GST Council
GST Reform – GST 2.0
The 56th GST Council meeting approved major structural reforms referred to as GST 2.0, focusing on rate rationalisation and simplification.
New Rate Structure
- Two primary slabs: 5% and 18%
- Removal of earlier 12% and 28% slabs
- 40% special de-merit rate for sin goods and select luxury items
- Effective shift in median rate from 12% to 5%
This structure aims to reduce disputes and simplify compliance.
Sectoral Relief Measures
FMCG and Essentials
- Items like hair oil, soaps, shampoos and toothpaste reduced from 18% to 5%
Health Sector
- GST exemption on individual life and health insurance policies
- 36 lifesaving drugs moved to Nil rate
- Most medicines reduced from 12% to 5%
Key Economic Sectors
- Cement reduced from 28% to 18%
- Air conditioners, dishwashers and TV sets brought uniformly to 18%
- Small cars and motorcycles up to 350cc reduced from 28% to 18%
Institutional and Procedural Reforms
GST Appellate Tribunal (GSTAT)
- To be operational by September 2025
- Strengthens dispute resolution framework
Registration Simplification
- Optional simplified registration for small and low-risk businesses
- Automated approval mechanism from November 2025
- Simplified registration for small suppliers using e-commerce platforms
Export Reform
- Place of supply for intermediary services shifted to location of recipient
- Enables exporters to claim export benefits
Benefits of GST 2.0
- Lower prices for essentials and healthcare
- Estimated nominal GDP boost of 20–30 basis points
- Reduced compliance complexity
- Support for MSMEs through lower input costs
- Wider tax base due to improved compliance
Challenges
- Estimated revenue loss of around ₹48,000 crore
- Removal of Input Tax Credit in certain sectors may increase operational costs
- Inverted duty structure persists in some sectors
- Lack of dedicated anti-profiteering authority after merger with CCI
Conclusion
GST transformed India’s indirect taxation framework by integrating domestic markets under a unified structure. GST 2.0 represents the next phase of rationalisation aimed at simplifying rates, enhancing affordability and improving compliance, while requiring careful fiscal management to ensure sustainability.
