Subsuming multiple state taxes, VAT, and other indirect levies, the Union Government introduced the Goods and Services Tax (GST) in July 2017. This nationwide tax replaced a host of indirect taxes and significantly reduced the burden of compliance and paperwork. By bringing various taxes under a single framework, GST introduced uniformity across tax structures at both the state and central levels.
Why GST matters for India
Before GST, numerous checkpoints and differing state-level taxes often hindered the smooth movement of goods across the country. GST dismantled these tax barriers and created a unified market by subsuming excise duty, VAT, and service tax. One of its biggest advantages has been the seamless flow of Input Tax Credit (ITC), which has reduced the overall tax burden for manufacturers and ultimately for consumers.
GST has also pushed businesses into a technology-driven compliance system. Online registration, e-way bills, and digital return filing have formalised a large part of the economy. As a result, the government’s tax base has expanded, increasing transparency and accountability. The simplified structure has also helped curb tax evasion and provided a more predictable and efficient revenue source for the government, strengthening supply chains.
Big hopes from GST even after rate cuts
Major changes were introduced during the 56th GST Council Meeting. The earlier four-tier structure of 5%, 12%, 18%, and 28% has been simplified into two main slabs—5% and 18%—with a separate 40% rate for luxury and “sin” goods.Additionally, tax rates on several essentials and FMCG items were lowered. Many products were moved from 12% and 18% slabs to 5%, while several consumer durables and electronics shifted from 28% to 18%. Even small cars and motorcycles below 250cc were moved from 28% to 18%.
Despite these cuts, GST collections have remained stable. In November 2025, India collected ₹1,70,276 crore—up 0.7% year-on-year—indicating resilience even after the rollout of GST 2.0 in September 2025. Cumulative gross collections from April to November 2025 stood at ₹14,75,488 crore, marking a robust 8.9% annual growth.
Why it matters in Budget 2026
GST collections are a strong indicator of the health of the economy, reflecting business activity and consumption patterns. But, there is another important aspect to it, lower GST rates also increase disposable incomes, which can boost consumption, especially in a consumption-driven economy like India.
On a broader scale, the rise and fall of GST collections could directly affect how much the government will spend. If GST revenues don’t live up to expectations, it would create problems for the government to meet fiscal deficit target unless there is another source of income or the government raises the money from other sources.
After the September 2025 rate cuts, India saw a surge in demand for consumer goods and automobiles, aided by the festive season. The second quarter GDP growth reached 8.2%, following 7.8% in the first quarter, surprising many observers.
Overall, GST rate cuts have provided a cushion to India’s economy amid geopolitical uncertainties and global trade tensions.
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