India’s latest GST overhaul seeks to streamline taxes, improve compliance, and support the government’s Viksit Bharat vision, with early signs of success but ongoing challenges in revenue collection and administrative processes.
India’s latest phase of goods and services tax reform is being presented as more than a technical reset of rates. In an opinion column published by Business Standard, Finance Minister Nirmala Sitharaman argued that the next generation of GST is intended to make the tax system simpler for households, easier to navigate for firms and more supportive of a broader growth agenda linked to the government’s Viksit Bharat ambition. The central claim is that a lighter, more predictable tax regime can widen compliance while still strengthening public finances.
That reform agenda gathered pace in September 2025, when the GST Council approved a major simplification of the tax structure. According to the Industry and Internal Trade Ministry’s IBEF summary of the decision, most items were shifted into two main slabs at 5 per cent and 18 per cent, while several daily-use goods moved to the lower rate. The same changes also cut GST on small cars and motorcycles up to 350 cc, as well as on many commercial vehicles and auto parts, while imposing a higher 40 per cent rate on luxury vehicles and other high-end transport used for personal consumption. The Council also reduced duties on inputs such as man-made fibre, yarn, fertiliser raw materials and renewable energy equipment, reflecting an effort to tackle long-running distortions in the tax system.
The finance minister says the early numbers suggest the redesign is working. In her column, she pointed to a sharp rise in reported taxable supplies between October 2025 and July 2026, along with broad-based gains across sectors and states. She also highlighted a 26.7 per cent increase in reported consumer sales in the post-reform period, arguing that lower taxes can leave households with more room to spend or save, while also supporting demand for businesses.
Revenue data, however, show a more complicated picture. Government figures for October 2025 showed gross GST collections of ₹1.96 trillion, up 4.6 per cent from a year earlier, while cumulative gross collections for April to October rose 9 per cent. Net collections, after refunds, increased only marginally in October, though they were still ahead for the year as a whole. Separate reporting by Business Standard has noted that, on a like-for-like basis, GST revenue growth in FY26 slowed to a five-year low, with import-related receipts rising faster than domestic revenue. That suggests the system is still adapting to the rate overhaul and to a broader shift in the composition of collections.
Sitharaman emphasised that compliance is expanding even as the system becomes more generous. She said GST registrations had risen to about 17.1 million by the end of August 2026, and that returns filed on time had also increased. Her column also said refund payments totalled about ₹1.80 trillion in the April-September period, with the share of tax discharged through input tax credits rising and accumulated credit easing relative to taxable supplies. For smaller firms, she argued, a faster and more reliable refund and credit process can matter as much as the headline tax rate itself, because working capital often determines whether a business can take on the next order.
The states, meanwhile, remain central to the reform’s political and fiscal success. Sitharaman said state GST receipts, including integrated GST settlements, rose by about 16 per cent in the first half of the financial year, strengthening their ability to fund infrastructure and public services. That matters because GST was designed as a shared national system, not simply a Union reform. Its long-term durability depends on whether state governments see the new structure as both fair and administratively workable.
The next test will come not from the initial rollout, but from the quality of the machinery around it. The proposals due before the GST Council on October 7 are expected to focus on registration, returns, refunds, disputes and the flow of input tax credit. Sitharaman’s wider argument is that tax reform now has to move beyond rates and into process, so that the compliance burden falls and certainty rises. If that happens, the government believes GST can support the next stage of India’s growth story without imposing unnecessary friction on the businesses it is meant to enable.
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