GST in India, Explained

The Goods and Services Tax (GST) is a single, nationwide indirect tax on the supply of goods and services, introduced on 1 July 2017. It replaced a tangle of central and state levies, excise, service tax, VAT, and others, and is administered jointly through the GST Council, where the centre and states decide rates together.

GST was discussed for nearly two decades, with the Kelkar Task Force recommending it in the early 2000s. It required the 101st Constitutional Amendment (2016) because taxing powers had to be pooled between the centre and the states, a significant shift in India's fiscal federalism, before the system could launch in 2017.

GST operates with multiple slabs (broadly 0, 5, 12, 18, and 28 percent) plus a cess on some goods, which critics say makes it more complex than a 'good and simple tax' should be. The compensation arrangement that guaranteed states a revenue floor ended in 2022, triggering disputes, and rate rationalisation remains a pending reform.

• Supporters credit GST with creating a single national market, reducing tax-on-tax, and formalising parts of the economy.
• Critics point to multiple slabs and compliance burdens on small businesses, and to states' loss of independent taxing power.

Most economies run a VAT or GST, but the simplest, Singapore and New Zealand, use a single low rate with few exemptions. India opted for multiple slabs to keep essentials cheap and luxuries taxed higher, trading simplicity for distributional fairness. The European Union's VAT, coordinated across member states, is the nearest parallel to India's centre-state bargaining.

GST is central to debates on fiscal federalism, the balance of power between centre and states, and how India funds welfare and public services.