Goods and Services Tax (GST): 101st Amendment, CGST, SGST and IGST, GST Council, Rate Structure, Compensation and Issues (UPSC Notes + PYQs)

Why GST

Before 2017, the Centre taxed manufacture (excise) and services (service tax), while States taxed sales (VAT), entry of goods, entertainment and luxuries. Taxes were levied on top of taxes (“cascading”), credit for tax paid on inputs did not flow across the Centre-State line, and trucks queued at State border check-posts. The idea of a single GST came from the Kelkar Task Force (2003); an Empowered Committee of State Finance Ministers worked on it for years. The Constitution (101st Amendment) Act, 2016 gave both levels concurrent power to tax goods and services, and GST began at midnight on 1 July 2017.

Constitutional provisions

• Article 246A: Parliament and State legislatures can both make laws on GST; Parliament alone for inter-State supply.
• Article 269A: IGST on inter-State supply (and imports) is levied by the Centre and shared with States as recommended by the Council.
• Article 279A: GST Council.
• Entries in the Seventh Schedule were amended (e.g., Entry 92C on service tax removed; Entry 54 of the State List limited to petroleum and alcohol).
• Compensation to States for five years for revenue loss, through the GST (Compensation to States) Act, 2017.

GST Council

The Council is chaired by the Union Finance Minister; members are the Union Minister of State for Finance or Revenue and the Finance (or other nominated) Ministers of all States and Union Territories with legislatures. Quorum is half the members. Decisions need a three-fourths majority of weighted votes present and voting: the Centre has one-third of the weight and all States together two-thirds. So neither the Centre alone nor the States alone can push a decision through. In Union of India v. Mohit Minerals (May 2022), the Supreme Court held that Council recommendations are persuasive, not binding on Parliament and State legislatures, which reflects cooperative federalism.

What GST replaced and what it left out

Rate structure and the 2025 reform

GST began with slabs of 0, 5, 12, 18 and 28%, plus a compensation cess on luxury and sin goods, and special rates for gold (3%) and rough diamonds. In September 2025 the 56th GST Council meeting simplified this into two main slabs, 5% and 18%, with a special 40% rate for a small set of sin and luxury goods, effective 22 September 2025. Many common items, from packaged food to small cars and insurance policies, became cheaper. Fewer slabs reduce classification disputes and inverted duty structures, where inputs are taxed higher than outputs.

How it works for a business

GST is a tax on value addition. A trader pays GST on purchases, collects GST on sales and pays the government only the difference, using input tax credit. Returns and invoices are filed on the GSTN portal; e-way bills track goods movement above a value threshold and e-invoicing applies to larger businesses. Small businesses below the threshold need not register, and those with turnover up to ₹1.5 crore can choose the composition scheme. Because tax is collected where goods are consumed, consuming States such as Uttar Pradesh gained relative to manufacturing States.

Issues

• Compensation: the five-year guarantee ended in June 2022; States lost a revenue cushion. The compensation cess was extended to March 2026 to repay loans taken during COVID-19.
• Fiscal autonomy: States gave up most of their own tax powers; some see the Council as Centre-dominated.
• Petroleum outside GST breaks the input credit chain.
• Compliance burden for small firms and fake invoices claiming credit.
• Dispute resolution: the GST Appellate Tribunal was set up only in 2025, eight years after launch.

Way forward

Bring petroleum, electricity and real estate into GST in phases, give the Council a dispute-settlement mechanism as Article 279A(11) envisages, use data analytics against fake invoices, and keep rates stable after the 2025 rationalisation.

GST compensation to States

States gave up taxes such as VAT, entry tax and octroi when GST began. The GST (Compensation to States) Act, 2017 guaranteed them 14% annual growth in revenue from 2015-16 for five years, paid from a compensation cess on luxury and sin goods such as tobacco, aerated drinks and cars. COVID-19 crushed collections in 2020, the cess fell short, and the Centre borrowed on behalf of States through back-to-back loans of about ₹2.7 lakh crore. Compensation ended in June 2022, but the cess was extended to repay those loans. With the 2025 rate reform, the cess is being wound up once the loans are cleared. States that had larger manufacturing bases and lost origin taxes still argue that GST has reduced their fiscal autonomy.

GST Appellate Tribunal and dispute resolution

The GST Appellate Tribunal (GSTAT), with a principal bench in New Delhi and State benches, was constituted in 2023-25 to hear appeals against orders of appellate authorities, after years of delay that left businesses with only the High Courts. Faster dispute resolution, along with simpler returns and quick refunds for exporters, is central to making GST a “good and simple tax”.

PYQ trend

Prelims asked the advantages of GST (2017) and exempted items (2018). Mains GS-III asks GST’s impact on federalism, revenue and the economy; GS-II links the GST Council to cooperative federalism.

GST: UPSC angle

GST UPSC PYQs (Prelims)

Questions UPSC has actually asked, from the official papers. Pick an option to check yourself.

Mains PYQs on this topic

No UPSC Mains question from 2023-2026 is directly on this topic. Older papers (2013-2022) will be added as the Mains bank grows.

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Image: Vladislav Bezrukov, Wikimedia Commons, CC BY 2.0