The Centre is bracing for a potential revenue shortfall of nearly Rs 40,000 crore as it prepares to roll out a major overhaul of the GST framework, Finance Ministry sources have confirmed.
The Fitment Committee, a panel of GST secretariat officers, has worked out preliminary estimates of the revenue deficit that both the Centre and states may face once the new structure is implemented.
Shift to Two-Tier GST Structure
The new system aims to simplify GST by moving to a two-rate framework of 5% and 18%, while retaining a 40% slab for sin goods. This restructuring would eliminate the current 12% and 28% brackets. While the reform is designed to streamline taxation and reduce disputes, it is also expected to significantly dent tax collections in the short term.
Online Gaming Losses Add to Pressure
Adding to the strain, the Centre is likely to forgo around Rs 20,000 crore annually from GST and TDS on online gaming platforms following a recent decision that has effectively curtailed such operations. Officials said this figure compounds the overall expected shortfall.
Relief on Insurance Premiums
For most services, tax rates are likely to remain unchanged. However, a key relief measure under discussion is the removal of GST on health and life insurance premiums for individual policyholders, a step that could lower household expenses and boost demand in the insurance sector.
Revenue Loss Seen as Temporary
Despite the immediate shortfall, the government expects increased consumer spending to offset the loss. Earlier this year, it introduced an income tax rebate for salaried individuals earning up to Rs 12.75 lakh annually, aimed at putting more disposable income in the hands of taxpayers and spurring consumption.
Key Council Meeting in September
The 56th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman, is scheduled for September 3-4 in New Delhi, preceded by an officers' meeting on September 2. Originally planned for later in the month, the meeting was advanced after consultations with state governments to fast-track the reforms.
States Endorse Rationalisation Plan
The Group of Ministers (GoM) on GST rate rationalisation, which met on August 20-21 in Delhi, has endorsed the Centre's plan to move to a two-tier structure. State finance ministers from across the country agreed that reducing slabs to 5% and 18% will simplify compliance and reduce disputes over classification.
PM Promises 'GST 2.0' by Diwali
The reforms follow Prime Minister Narendra Modi's Independence Day address, in which he announced "next-generation GST reforms" by Diwali. Calling GST one of India's biggest economic reforms since its launch in 2017, Modi said the overhaul would reduce the tax burden on the common man, farmers, MSMEs and the middle class, framing it as a "Diwali gift" to citizens.
With the festive season approaching, the government is betting that timely GST reforms will not only ease compliance but also provide a much-needed boost to demand and economic growth.
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