Goods and Services Tax (GST) in India – Structure, GST Council, Rate Structure, Impact, Challenges, and Recent Developments
Imagine buying a simple product like a biscuit before 2017. The price you paid quietly included excise duty charged at the factory, VAT charged by the state, service tax on transportation, and sometimes an entry tax when the goods crossed a state border. None of these taxes talked to each other. Tax was charged on tax, prices increased, paperwork exploded, and businesses struggled. The introduction of Goods and Services Tax (GST) attempted to fix this chaos with one bold idea – "One Nation, One Tax."
🇮🇳 GST – The Big Idea
GST is one of the most important economic and federal reforms in independent India. For UPSC aspirants, GST is relevant for Polity (constitutional amendment, federalism), Economy (taxation, growth, inflation), and Governance (cooperative federalism, technology-driven compliance).
Introduction to Goods and Services Tax (GST)
Goods and Services Tax (GST) is a comprehensive, destination-based indirect tax levied on the supply of goods and services. It subsumed multiple central and state indirect taxes into a single unified tax structure. GST aims to create a common national market, remove cascading of taxes, and improve tax compliance through technology.
The slogan "One Nation, One Tax" does not mean only one tax rate. Instead, it means a unified tax system where the same tax applies across India, replacing the earlier fragmented indirect tax regime.
Key Definitions
GST (Goods and Services Tax): A destination-based indirect tax levied on the supply of goods and services at each stage of value addition.
GSTN (Goods and Services Tax Network): A non-profit company that provides the IT backbone for GST registration, return filing, payments, and data analytics.
Input Tax Credit (ITC): Credit of taxes paid on inputs that can be used to offset tax liability on output.
E-Way Bill: An electronic document required for movement of goods above a prescribed value, generated on the GST portal.
Historical Background: Pre-GST Indirect Tax Regime
Before GST, India had a complex and fragmented indirect tax system. Both the Centre and States levied their own taxes, often on the same transaction.
❌ Pre-GST: Fragmented Tax System
Major Central Taxes (Pre-GST)
- Central Excise Duty – on manufacture of goods
- Service Tax – on provision of services
- Additional Customs Duty (CVD)
- Special Additional Duty (SAD)
Major State Taxes (Pre-GST)
- Value Added Tax (VAT)
- Central Sales Tax (CST)
- Entry Tax / Octroi
- Luxury Tax
- Entertainment Tax (state-level)
This system led to:
- Cascading effect of taxes (tax on tax)
- High logistics and compliance costs
- Tax barriers at state borders
- Distortion of production and investment decisions
Constitutional Amendment: 101st Constitutional Amendment Act, 2016
GST required a fundamental restructuring of India's fiscal federal framework. Therefore, a constitutional amendment was necessary.
📜 101st Constitutional Amendment Act, 2016
| Provision | Description |
|---|---|
| 101st Constitutional Amendment Act, 2016 | Provided constitutional backing for GST |
| Article 246A | Concurrent power to Centre and States to levy GST |
| Article 269A | Levy and collection of IGST on inter-state trade |
| Article 279A | Creation of GST Council |
| Compensation to States | Guaranteed compensation for revenue loss for 5 years |
This amendment reflects cooperative federalism, where both levels of government jointly decide tax policy.
GST Council: Composition and Functions
The GST Council is the most powerful federal institution created under GST. It decides tax rates, exemptions, rules, and procedures.
🏛️ GST Council – Composition & Voting
Composition (Article 279A)
- Chairperson – Union Finance Minister
- Union Minister of State (Finance)
- Finance Ministers of all States and UTs with legislature
Voting Mechanism
- Centre's vote weight – 1/3
- States' combined vote weight – 2/3
- Decisions require 3/4th majority
This structure ensures that neither the Centre nor States can unilaterally impose decisions.
Structure of GST in India
India follows a dual GST model, reflecting its federal structure.
🔄 Dual GST Model – How It Works
- CGST: Levied by Centre on intra-state supply
- SGST: Levied by State on intra-state supply
- IGST: Levied by Centre on inter-state supply and imports
- UTGST: Levied by Union Territories without legislature
Example: If goods are sold within Karnataka, CGST + SGST apply. If goods move from Karnataka to Maharashtra, IGST applies.
GST Rate Structure
India adopted a multi-rate GST structure to protect the poor and ensure revenue neutrality.
📊 GST Rate Slabs
| GST Slab | Examples |
|---|---|
| 0% | Unbranded food grains, fresh vegetables |
| 5% | Tea, sugar, medicines |
| 12% | Processed food, computers |
| 18% | Most services, IT services |
| 28% | Luxury goods, automobiles |
Items Outside GST
🚫 Items Kept Outside GST
- Petroleum crude
- High speed diesel
- Motor spirit (petrol)
- Natural gas
- Aviation turbine fuel
- Alcohol for human consumption
- Electricity
These exclusions limit GST's revenue potential and distort input tax credit chains.
GST Network (GSTN)
GSTN is the technological backbone of GST. It enables:
- Online registration
- Return filing
- Invoice matching
- E-way bill generation
GST is one of the world's largest digital tax systems.
Input Tax Credit (ITC) Mechanism
ITC is the core strength of GST. Tax paid on inputs can be offset against output tax liability, ensuring tax is levied only on value addition.
However, ITC is subject to conditions like invoice matching and timely filing of returns.
E-Way Bills and Compliance
E-way bill is mandatory for movement of goods beyond a threshold value. It has reduced tax evasion and improved logistics efficiency.
Compensation Cess and States' Revenue
To address states' concerns, the Centre guaranteed 14% annual growth in GST revenue for 5 years. Compensation cess was levied on luxury and sin goods.
Post-pandemic revenue stress led to debates on Centre-State fiscal relations.
Impact of GST on Indian Economy
- Creation of a national market
- Reduction in logistics costs
- Formalization of economy
- Improved tax compliance
GST Revenue Trends
📈 GST Collection Growth
| Year | Average Monthly Collection |
|---|---|
| 2017-18 | ₹0.9 lakh crore |
| 2021-22 | ₹1.2 lakh crore |
| 2023-24 | ₹1.6 lakh crore |
GST Appellate Tribunal (GSTAT)
GSTAT provides a uniform appellate mechanism for GST disputes, reducing litigation burden on High Courts.
Challenges in GST
- Multiple tax rates
- High compliance burden for MSMEs
- Technology glitches
- Exclusion of petroleum and electricity
Recent Developments and Way Forward (GST 2.0)
- QR codes on B2C invoices
- E-invoicing expansion
- Rate rationalization by GoMs
- Strengthening GSTN infrastructure
UPSC Previous Year Questions
UPSC Mains 2019
Discuss the role of GST Council in India's federal structure.
Practice MCQs
-
Which Article of the Constitution deals with GST Council?
Answer: Article 279A
Explanation: Article 279A provides for the constitution, composition, and functions of the GST Council.
-
Which tax is levied on inter-state supply?
Answer: IGST
Explanation: IGST is levied by the Centre on inter-state transactions.
-
GST is a:
Answer: Destination-based tax
Explanation: Tax accrues to the state where consumption occurs.
-
Which body provides IT backbone for GST?
Answer: GSTN
Explanation: GST Network manages the GST digital platform.
-
Alcohol for human consumption is:
Answer: Outside GST
Explanation: States retain exclusive power over alcohol taxation.
-
Which model of GST is followed in India?
Answer: Dual GST
Explanation: Both Centre and States levy GST simultaneously.
-
Which amendment enabled GST?
Answer: 101st Constitutional Amendment Act
Explanation: It inserted new articles related to GST.
-
Primary objective of GST?
Answer: Remove cascading effect of taxes
Explanation: ITC ensures tax is levied only on value addition.