The GST Saga: Eight Years of Tax Reform in India (2017-2025)

The Goods and Services Tax (GST), implemented on 1st July 2017, marked a historic shift in India's indirect tax system. It replaced a complex web of central and state taxes with a unified, destination-based tax. Over the past eight years, GST has evolved through policy refinements, digital innovations, and stakeholder feedback, becoming a cornerstone of India's fiscal framework.

Pre-GST Tax Landscape

Before GST, India's indirect tax system was fragmented:

• Central Taxes: Excise Duty, Service Tax, Central Sales Tax (CST), Customs Duty
• State Taxes: VAT, Entry Tax, Octroi, Luxury Tax, Entertainment Tax, Purchase Tax

This led to:

• Cascading effect of taxes
• Multiple registrations and returns
• Barriers to interstate trade

GST Structure: Dual Model

India adopted a dual GST model, where both the Centre and the States levy tax on a common base:

• CGST - Central Goods and Services Tax
• SGST - State Goods and Services Tax
• IGST - Integrated GST (for inter-state transactions)
• UTGST - Union Territory GST

GST is levied at every stage of the supply chain, with input tax credit (ITC) to avoid cascading.

Year-Wise Evolution of GST (2017-2025)

2017-18: The Launch Year

• GST launched with 4-tier rate structure: 5%, 12%, 18%, 28%
• Initial issues: GSTN portal glitches, return filing complexity
• GSTR-1, 2, 3 introduced but later suspended
• Anti-profiteering Authority established
• Composition scheme for small taxpayers (turnover < Rs 1.5 crore)

2018-19: Stabilization Phase

• E-way bill system launched
• Rate rationalization on 400+ items
• Refund processing streamlined for exporters
• GSTR-3B continued as primary return

2019-20: Compliance Simplification

• QRMP scheme introduced
• E-invoicing mandatory for businesses > Rs 500 crore
• Composition scheme extended to service providers
• GST Appellate Tribunal proposed

2020-21: Pandemic Response

• COVID-19 impact: compliance deadlines extended
• E-invoicing threshold reduced to Rs 100 crore
• Interest on delayed payment charged only on net liability
• Compensation shortfall addressed via borrowing

2021-22: Digital Push

• E-invoicing extended to businesses > Rs 20 crore
• Auto-populated GSTR-2B introduced
• Aadhaar authentication mandatory for registration
• GSTN portal upgraded

2022-23: Legal Refinements

• GST Tribunal framework finalized
• Time limit for ITC claims extended to 30th Nov
• Rate changes on packaged food, LED lights, solar heaters
• GSTR-1 and 3B linkage enforced

2023-24: Compliance Tightening

• 3-year time limit for filing returns introduced
• GSTR-1A introduced for corrections
• E-invoicing threshold reduced to Rs 5 crore
• GST revenue crosses Rs 18 lakh crore

2024-25: Automation and AI Integration

• Auto-filled GSTR-3B becomes non-editable
• AI-based scrutiny and faceless assessments rolled out
• GST Pakhwada campaign launched
• Discussions begin on including petroleum and alcohol under GST

Revenue Trends

Sectoral Impact

Positive Outcomes

• Manufacturing: The manufacturing sector benefited from seamless input tax credit (ITC) mechanisms, allowing businesses to offset taxes paid on inputs against their output tax liability. This significantly reduced the cascading effect of taxes, leading to a decrease in overall production costs and more competitive pricing. Additionally, the unified tax structure and elimination of state-specific taxes helped in reducing logistics costs by streamlining inter-state movement of goods and improving supply chain efficiency.
• E-commerce: GST brought about unified compliance for the e-commerce sector through the introduction of GSTIN (Goods and Services Tax Identification Number) and the Tax Collected at Source (TCS) mechanism. This simplified tax compliance for online businesses operating across multiple states, ensuring a more consistent and predictable tax environment for their operations.
• Logistics: A major positive outcome for the logistics sector was the abolition of check posts at state borders. This significantly reduced transit times and bottlenecks, leading to faster movement of goods and increased efficiency in transportation. The elimination of these barriers contributed to a more integrated national market for goods.
• Exports: Exports were made zero-rated under GST, meaning that no GST is levied on exported goods and services. This policy, combined with a streamlined refund mechanism for input taxes, ensured that Indian exports remained competitive in the global market. Businesses could recover the GST paid on their inputs, preventing the tax from being embedded in the export price.
• MSMEs: Micro, Small, and Medium Enterprises (MSMEs) received specific benefits through schemes like the Quarterly Return Monthly Payment (QRMP) scheme and the composition scheme. The QRMP scheme allowed eligible MSMEs to file returns quarterly while making monthly payments, simplifying their compliance burden. The composition scheme offered a lower tax rate and simpler compliance for small taxpayers with limited turnover.

Challenges

• Real Estate: The real estate sector faced challenges due to ITC restrictions on certain inputs, such as land and construction services, which could not be fully offset. This led to higher costs for developers and, consequently, for property buyers. Furthermore, the sector encountered valuation disputes, particularly concerning the determination of taxable value for construction services and the treatment of various components in real estate transactions.
• Textiles: The textile industry experienced issues related to an inverted duty structure, where the tax rate on finished goods was lower than the tax rate on inputs. This created a situation where businesses accumulated unutilised input tax credit, leading to cash flow blockages and complexities in obtaining refunds.
• Telecom: The telecom sector faced classification issues, particularly concerning the categorization of certain services and composite supplies under different GST rates. These ambiguities led to disputes regarding the applicable tax rates and potential complexities in compliance for various telecom services.
• Hospitality: The hospitality sector encountered rate fluctuations for services offered, which often varied based on the tariff of the accommodation. Additionally, there were limitations on input tax credit for certain expenses, such as food and beverages, impacting the overall tax efficiency for hotels and restaurants.
• Second hand goods industry: The second-hand goods industry faces challenges primarily related to valuation and the determination of input tax credit. It is often difficult to ascertain the original value of goods and the associated GST paid, which complicates the calculation of applicable GST on subsequent sales. Additionally, issues arise concerning the availability and proper utilization of ITC on refurbished or resold items, leading to potential disputes and compliance complexities.

Legal and Administrative Framework

• 101st Constitutional Amendment Act enabled GST: The implementation of GST required a significant constitutional change, which was brought about by the 101st Constitutional Amendment Act. This amendment conferred concurrent taxing powers to both the central and state governments, allowing them to jointly levy and administer GST.
• GST Council: Apex decision-making body: The GST Council serves as the apex decision-making body for all matters related to GST in India. Comprising the Union Finance Minister and state finance ministers, it is responsible for making recommendations on tax rates, exemptions, rules, and procedures, ensuring collaborative governance of the tax system.
• Advance Ruling Mechanism: For tax clarity: An Advance Ruling Mechanism was established to provide clarity on tax matters to businesses in advance of a transaction. This mechanism allows taxpayers to obtain a binding ruling from tax authorities on the applicability of GST provisions to their specific activities, reducing uncertainty and potential disputes.
• Anti-profiteering Authority: Ensures benefit pass-through: The Anti-profiteering Authority was constituted to ensure that the benefits of reduced tax incidence under GST were passed on to consumers. Its role was to investigate instances where businesses might not have lowered their prices despite receiving input tax credit benefits, thereby preventing undue enrichment.
• GSTN: Tech backbone for registration, returns, payments: The Goods and Services Tax Network (GSTN) acts as the technological backbone for the entire GST system. It provides the common and shared IT infrastructure for taxpayer registration, filing of various returns, and processing of tax payments, facilitating seamless digital interaction between taxpayers and the tax administration.

The Road Ahead

• Rate Rationalization: Merging 12% and 18% slabs - The GST Council is considering a major rate rationalization effort, which involves the potential merger of the 12% and 18% tax slabs. This move aims to simplify the current multi-tiered rate structure, reducing classification disputes and making the tax regime more straightforward for businesses and consumers alike. A simplified rate structure is expected to improve compliance and reduce administrative complexities.
• Tribunal Operationalization: Faster dispute resolution - The establishment and operationalization of the GST Appellate Tribunal (GSTAT) are crucial for ensuring faster and more efficient dispute resolution. Currently, appeals against GST decisions often face significant delays, leading to prolonged litigation. A fully functional GSTAT will provide a specialized forum for resolving tax disputes, reducing the burden on higher courts and ensuring timely justice for taxpayers.
• Inclusion of Petroleum & Alcohol: Broaden tax base - A key long-term objective for GST is the inclusion of petroleum products and alcohol within its ambit. These commodities are currently outside GST, leading to a fragmented tax system and preventing businesses from claiming input tax credit on them. Bringing them under GST would significantly broaden the tax base, enhance revenue collection, and allow for a seamless flow of input tax credit across the entire supply chain.
• AI & Blockchain: For fraud detection and real-time audits - The future of GST administration is set to integrate advanced technologies like Artificial Intelligence (AI) and blockchain. AI can be leveraged for sophisticated fraud detection by analyzing vast datasets of transactions, identifying patterns, and flagging suspicious activities in real-time. Blockchain technology offers the potential for secure and transparent record-keeping, enabling real-time audits and enhancing the credibility of financial transactions within the GST ecosystem.
• Global Benchmarking: Aligning with OECD best practices - India's GST framework aims to align itself with global best practices, particularly those recommended by the Organization for Economic Co-operation and Development (OECD). This involves continuous evaluation and refinement of the GST system to ensure it meets international standards for tax efficiency, transparency, and fairness. By benchmarking against OECD guidelines, India can further enhance its tax competitiveness and attractiveness for global businesses.

In its 8-year journey, GST has transformed India's indirect tax ecosystem-from a fragmented, multi-layered structure to a digitally integrated, compliance-driven regime. While challenges remain, the reform has delivered on its core promises: transparency, efficiency, and a unified market. The next phase must focus on simplification, legal certainty, and stakeholder trust to realize GST's full potential.