Next-Gen GST: Rate Rationalisation, Rising Collections and the October 7 Council Agenda

Union Finance Minister Nirmala Sitharaman has written in The Hindu that “Next-Gen GST” is delivering relief to households and growth for enterprises, with process reforms to follow. The rate changes took effect on 22 September 2025. According to her, the value of reported taxable supplies between October 2025 and July 2026 grew by 25.8% over the corresponding period a year earlier. Gross GST collections for April to September 2026 stood at ₹12.46 lakh crore, up 11.6% year-on-year.

The next milestone is close. The GST Council is scheduled to meet on 7 October to consider proposals on registration, returns, refunds, disputes and the flow of input tax credit. These proposals are meant to reduce the time and cost of compliance, which has long been the main grievance of small taxpayers.

For aspirants, GST is a core theme. It touches cooperative federalism, tax buoyancy, the informal economy and ease of doing business. Understanding both the numbers and the institutional design is essential for GS-III and GS-II answers.

Background and Context

GST was introduced on 1 July 2017 through the 101st Constitutional Amendment Act, 2016, replacing a cascade of indirect taxes with a destination-based, multi-stage tax. Its early years were marked by multiple slabs, compliance complexity and disputes over compensation to States.

Five Important Key Points

• Article 279A created the GST Council, a constitutional body chaired by the Union Finance Minister with State Finance Ministers as members.
• Article 246A gives both Parliament and State legislatures concurrent power to levy GST.
• Next-Gen GST rate changes took effect on 22 September 2025, aimed at reducing and rationalising rates.
• Net collections after refunds for April to September 2026 grew by 10.4%, and refunds were about ₹1.80 lakh crore.
• GST registrations stood at roughly 1.71 crore at the end of August 2026, up nearly 15% year-on-year.

Constitutional and Institutional Design

The 101st Amendment inserted Articles 246A, 269A and 279A and amended the Seventh Schedule. The GST Council decides rates, exemptions, thresholds and model laws. Its voting pattern is a notable feature: the Centre has one-third weight and States together two-thirds, with a three-fourths majority required for decisions. In Union of India v. Mohit Minerals (2022), the Supreme Court held that the Council’s recommendations are persuasive rather than binding, which reinforced the cooperative character of the framework. The Goods and Services Tax Appellate Tribunal, long awaited, is meant to resolve disputes.

Economic Evidence and Revenue Trends

The Finance Minister’s data points to broad-based growth. Reported taxable supplies grew across all 11 sector groups and all major States. Business-to-consumer sales rose 26.7% in the post-reform comparison. Every month from June to September 2026 recorded double-digit annual growth. States’ aggregate SGST receipts, including their share of IGST settlements, grew about 16% in April to September. GSTR-3B returns filed by due dates for April to July 2026 were 12.6% higher than a year earlier. A critical reading must note that these are reported figures, and that part of the growth may reflect formalisation, base effects and anti-evasion measures, not only demand. Lower rates also carry a revenue-neutrality risk that the data so far has not borne out.

Compliance Burden and Small Enterprises

The article admits that “a growing system must remain attentive to the costs it imposes on smaller participants”. The working capital of small firms depends on timely input tax credit and refunds. Her figures indicate that the share of liability discharged through credit rose while accumulated credit fell relative to taxable supplies. The proposals before the Council on 7 October target registration, returns and disputes. Past reforms such as the Composition Scheme and Quarterly Return Monthly Payment (QRMP) simplified filing, but invoice matching, inverted duty structures and notices continue to burden MSMEs.

Federal and Fiscal Dimensions

Cooperative federalism is both GST’s strength and its stress point. The compensation arrangement for States ended after the transition period, and States now depend on buoyant collections. The Finance Minister credits States for sharing the reform’s design. At the same time, States continue to seek greater fiscal space, while the Centre’s use of cesses and surcharges outside the divisible pool is a recurring concern. The Sixteenth Finance Commission’s devolution framework interacts directly with GST performance.

Bihar Connection

Bihar has a low tax base relative to its population, and its own taxes cover only a fraction of its expenditure. It therefore relies heavily on central devolution, with a share of roughly 10% under the Fifteenth Finance Commission. For Bihar, buoyant SGST and IGST settlement shares are significant. The Finance Minister’s emphasis on Tier-2 and Tier-3 towns is relevant to Bihar’s small trading clusters in places such as Muzaffarpur, Gaya and Bhagalpur. Simplified registration and refunds could bring more of the State’s informal traders into the formal economy.

Way Forward

The Council should adopt automated, risk-based refunds with firm timelines. Registration should be simplified and rationalised for micro-businesses. The GST Appellate Tribunal should be made fully functional to cut litigation. Inverted duty structures should be corrected, and invoice-matching glitches fixed. The Council should publish regular, disaggregated data so reported growth can be independently verified. Finally, the long-pending inclusion of petroleum and electricity should be debated seriously, with a revenue-sharing formula acceptable to States.

Relevance for UPSC and SSC Examinations

UPSC: GS-III (indirect taxes, inclusive growth, MSMEs); GS-II (federalism, GST Council). SSC: the 101st Amendment, Articles 246A and 279A, GST launch date and slabs, the Council’s composition. Key terms: GST Council, destination-based tax, IGST, SGST, input tax credit, GSTR-3B, QRMP, inverted duty, GSTAT, tax buoyancy, Mohit Minerals.