Beyond Tax Reform: Evaluating the
Socio-Economic Impact of GST on Relief, Equity, and Consumption in India
Namra Rafat
Postgraduate Student, Department of
Commerce,
Khwaja Moinuddin Chishti Language
University
Lucknow, Uttar
Pradesh, India
Dr. Zaibun Nisa
Assistant Professor, Department of
Commerce
Khwaja Moinuddin Chishti Language
University
Lucknow, Uttar Pradesh, India
Abstract
India’s tax policy framework has a significant
influence on the country’s economic growth, business environment, and fiscal
stability. GST, known as “Goods and Services Tax,” is a comprehensive indirect
tax that is levied on the manufacture, sale, and consumption of goods and
services at the state and national levels. All the indirect taxes that are levied
on goods and services by the Central Government and State Governments are
merged into a single tax called GST. Now, it is the only indirect tax that
directly affects all the sectors of the Indian economy.
Before GST was introduced into the Indian taxation
system, VAT was levied at different rates on goods. Despite the success of VAT,
there are still certain limitations in its structure at both the central and
state levels. To solve the issues untouched by vat, GST came into effect. In
India, the GST was implemented from 1 July 2017. For this, the Constitution
(One Hundred and Twenty Second Amendment) Bill, 2014 was Introduced in the Lok
Sabha.
This Study aims to understand the socio-economic
impact of Goods and Services Tax in India, particularly in terms of tax relief,
equity, and consumption patterns. Moreover, it analyzes
the impact of GST on the Indian taxation system and economic structure, and the
study is based on secondary data collected from government reports, research
papers, and official publications.
Keywords: Goods
and Services Tax, Indian Economy, Consumption, Tax Reforms, Tax Equity
Introduction
India is one of the world's biggest
democratic countries that follows the federal tax system for the levy and
collection of various taxes. Taxes play the role of a backbone in the economic
development of a country. Tax policies in the economy have an impact on both
efficiency and equity. A good tax system is viewed as the system that addresses
the issues of income distribution, along with generating enough revenues to
support government expenditures. (Adhana,
2015; Gupta, n.d.)
Before gaining independence, India
had a highly complex and regressive taxation system that obstructed both
domestic and foreign trade. To address the shortcomings, the Indian government
has introduced the VAT system at the state level as an initial step to
establish a transparent and competitive tax framework. This reform was expected
to expand the tax base, improve tax buoyancy, and enhance the efficiency of
India’s indirect taxation system (Mukherjee 2015; Garg, Narwal, and Kumar
2023d). It transitioned the problematic sales tax system to VAT. The sales tax
system was the primary source of revenue for the state governments of India,
generating nearly 60% of government revenue receipts. (Garg
et al., 2025)
During 1960 -1990, global tax reforms aimed to reduce dependency on foreign
trade taxes by introducing Value Added Tax (VAT), which simplifies income and
corporate taxes in response to increasing global economic integration. (Garg
et al., 2025)
The Value Added Tax (VAT) was considered to be a major improvement over the existing
central excise duty at the national level and the sales tax system at the state
level. However, this taxation system has several challenges, such as cascading
tax effect, neglect of input tax credits, and a multiplicity of tax rates.
These challenges are obstacles in business operations for dealers and increase
the costs of legal compliance, failing to improve the revenue performance.
Furthermore, it imposes additional levies such as entry taxes, surcharges,
luxury taxes, and entertainment taxes that complicate the sales tax framework,
making it more burdensome. There have been several instances at the
international level where VAT regimes prove to be a failure and are consequently
withdrawn by the government (Murty 1995; Purohit 2001; Mukherjee 2015; Mohanty,
Kumar, and Patra 2017; Khoja and Khan 2020; Garg, Narwal, and Kumar 2023a)
The government failed to implement a
harmonized VAT system at the state level due to two significant challenges: The
prolonged opposition shown by Indian states and the constitutional framework of
having a federal system of government. In 2017, after years of debate, the
union government introduced a harmonized
goods and services tax. (Naseer
A. Khan2, n.d.)
Seeking inspiration from other
countries, the Indian Government proposed the ideology of ‘one nation one tax’.
The GST bill has merged more than ten types of indirect taxes into a single
tax, which is collected at one place for both the state and central government.
In India’s economic history, this tax reform is regarded as a landmark moment,
which has impacted businesses, consumers, and government revenue since the
economic liberalisation of 1991.(Dandona
& Gupta, 2024; Dr. V. Lekha Prasath, 2026)
The implementation of the GST results
in extensive collaboration between the central and state governments, which aims
to create a more transparent, efficient, and uniform tax structure. It was expected that GST will bring about 2%
incremental GDP growth of the country.(PDF, n.d.-a)
However, pricing imbalances, burden
of legal compliance, and Inequitable distribution of tax burden resulted from
the original GST framework's (GST 1.0) due to several GST slabs and
classifications. In response to these challenges, the government revised the
tax structure and introduced GST 2.0 in
2025, which rationalised tax rates and reclassified hundreds of goods.(Vipanshi
Agarwal, 2025)
This study therefore, assesses how GST 2.0 has affected the socio-economic factors, particularly in terms of tax relief,
equity, and consumption patterns
Evolution of GST – Timeline
The process to implement Goods and Services
Tax in India began during the period of Shri Atal Bihari Vajpayee’s government,
almost two decades before its actual implementation in 2017. (Dr.
V. Lekha Prasath, 2026) The
following timeline traces the major milestones in the evolution of GST:
|
YEAR |
PROCESS |
|
2000 |
For the first time, in the Atal Bihari Vajpayee Government,
the idea of GST was suggested. |
|
2004 |
A task force led by Shri Vijay L. Kelkar observed
that existing tax structure had several problems, which could be reduced or
resolved through the introduction of GST. |
|
February 2005 |
The then Finance Minister Shri.P.
Chidambaram highlights GST in the budget session for the financial year 2005
– 2006 |
|
2006 |
It was announced that the Goods and Service Tax
would be implemented from 1st April, 2010 |
|
2009 |
Then President Shri. Pranab Mukherjee announced the
basic structure of GST |
|
2010 |
The implementation of GST was delayed for one year |
|
2011 |
The Constitution (115th Amendment) Bill focused on
the introduction of GST but the dissatisfaction
expressed by opposition leaders over the Bill, and hence, the Bill was
forwarded to the Standing Committee. |
|
November 2012 |
Shri.P.
Chidambaram along with the finance ministers of all the states hold meetings
and set the deadline for the resolution of issues by 31st December, 2012 |
|
August 2013 |
After detailed examination, the Standing Committee
of the Parliament, submitted a final report |
|
May
2014 |
The deadline for the 115th Amendment Bill expired. |
|
December 2014 |
In 2014, the new Finance Minister, Shri. Arun
Jaitley introduced the 122nd Constitutional Amendment Bill to implement GST
in India. The opposition insisted that the Bill be sent to the Standing
Committee for discussion. |
|
February 2015 |
The finance minister announced that Goods and
Service Tax would be implemented on the 1st of April, 2016 |
|
May
2015 |
122nd Amendment Bill was passed in the Lok Sabha |
|
August 2015 |
Rajya Sabha did not pass the Bill. |
|
March
2016 |
Shri. Arun Jaitley accepted the Congress’s demand
that the GST rate should not exceed 18%. but the demand by Congress to fix
the GST rate at 18% was rejected on the grounds of future emergencies might
require changes in tax rates. |
|
June
2016 |
The draft model law on GST was released by The
Ministry of Finance to the public for seeking clarifications and suggestions |
|
August
2016 |
Rajya Sabha passed the Bill |
|
September
2016 |
President Shri. Pranab Mukherjee gave his approval
to the Bill, and Assam became the 1st state to officially endorse the Bill |
|
2017 |
Four Bills related to GST became Acts: The Central
GST Bill, the Integrated GST Bill, the Union Territory GST Bill, and the GST
(Compensation to States) Bill. |
|
1st
July 2017 |
The GST Bill was announced to be applicable from 1st
July 2017. The GST Council finalised the GST Rates, GST Rules, and the GST
Bill. |
|
September
2025 |
Introduction of a new simplified two-slab structure (GST
2.0) of 5% and 18%, replacing the previous 4-tier structure |
Source: GST Council press
releases and Press Information Bureau Factsheet (PIB, Government of India).
Table 1: Evolution of GST
Literature Review
Since the implementation of GST in
2017, Many researchers studied its impact on Indian economy in terms of equity,
relief and consumption patterns. This section reviews the studies related to
the socio-economic impact of GST.
(Dr.
V. Lekha Prasath, 2026)
observed the impact of GST reform on the common man and the Indian economy. By
replacing the cascading effect of indirect taxes with a unified tax structure,
GST improved transparency, compliance, and trade efficiency. The 2025 reform of
GST enhanced the affordability of essentials and strengthened growth. However,
challenges such as compliance burden, technological hurdles, and complex slabs
continue to affect its full effectiveness.
(Vipanshi
Agarwal, 2025)
evaluates the impact of GST 2.0 on India’s FMCG sector. The study revolves
around consumer welfare and taxes paid by them. The revised GST rate structure
increases the affordability for necessity-based consumption baskets, enhancing
equity and purchasing power. The study found that GST 2.0 can strengthen
consumption-led growth.
(Naik
et al., 2025) highlights
the two-slab GST 2.0 framework, which represents a balanced reform aimed at
improving efficiency, equity, and simplification in India’s tax system. By
reducing multiple tax slabs to two core rates, this structure is expected to
lower compliance costs, minimize classification disputes, and enhance the
affordability of essential goods. They reported that GST 2.0 can strengthen
transparency, inclusivity, and long-term economic stability.
The Indian Express, in discussion
with policy experts on GST 2.0, which was introduced in September 2025. The
goal of GST 2.0 is to reduce the number of tax slabs. Instead of having four
different tax rates, the new structure moved towards fewer and simpler rates.
Essential goods are taxed less. Luxury goods are taxed more. This makes the
system fairer and easier to understand. It aims to increase the purchasing
power of lower-income families by reducing the cost of everyday items
(Garg
et al., 2025)
examines the impact of revenue generated from GST on India’s economic growth
using data from 2017–2024. The findings reveal that GST revenue and FDI have a
positive influence on growth in both the short and long run.
(Dandona
& Gupta, 2024)
surveyed consumers and asked what they thought about GST and how it impacted
their life. Most people had a positive view of GST. They see the system as more
organized and transparent than the previous taxation system. Besides this, one
big problem kept coming up in their research. People were confused about the
different tax slabs. They concluded that while GST was a good idea, it still
needs communication and simplification.
The National Council of Applied
Economic Research found in their study about GST that its implementation could
help India's economy grow by 0.9% to 1.7% extra every year. By replacing the old rigid tax system with a
simplified one. They also state in their report that Indian exports could
increase by 3.2% to 6.3%, which means Indian businesses sell more goods to
other countries. As more & more businesses would start paying taxes, more
revenue for the government to spend on public services.
(Garg,
Narwal, and Kumar, 2023)
demonstrated how GST changed the process of tax collection. They observed that
GST had made a big positive difference in India. As now, everything moved
online and businesses could claim back the tax they already paid on raw
materials. On the contrary, they noted that small and medium businesses
struggled a lot in the beginning. The new system of taxation was complicated
for them. They had to learn new software, file returns online, and maintain
detailed records. This was expensive and time consuming, especially for shop
owners and small manufacturers who were not used to digital systems.
(Satyajit
Mallick & Rashmi Tanwar, 2023)
showcased GST as a major indirect tax reform introduced in India to replace
multiple taxes and reduce corruption and cascading effects. Further, study
reveals the mixed impacts of GST on the common man, with short-term inflation
but long-term transparency and revenue growth.
(A.
K. Yadav & Kumar, 2018)
studied whether GST was fair to everyone, especially people who belong to the
lower-income group. They highlighted that exempting essential goods and
services from being taxed is beneficial. Things like basic food items,
healthcare, and education were either fully exempted or taxed at very low
rates. This was important because poor families spend most of their income on
these basic things. By not taxing them heavily, the
government made sure that GST did not become an extra burden on people who
could least afford it.
(Mohanty
et al., 2017)
observed the countries around the world where VAT systems had failed. They
suggested that having too many different tax rates and complicated rules could
slowly damage the benefits of GST. If the policy makers do not keep the tax
system simple, the same problems that existed before GST could come back.
(Adhana,
2015) explains the concept,
evolution, and structure of GST in India, showcasing its dual model (CGST,
SGST, IGST) and Input Tax Credit mechanism. It discusses the replacement of
multiple indirect taxes and the removal of cascading effects. The study
examines expected economic benefits, implementation challenges, and political
developments.
(PDF, n.d.-b)
reported that before the implementation of GST, India had a taxation system
called VAT. While VAT has its own advantages, it still has many problems that
businesses faced such as different tax rules in different states, which
ultimately increase the cost. Moving goods from one state to another was
complicated and expensive. Mukherjee emphasized the need for GST as it would
solve these problems by creating a single tax system for the whole country.
This would make it easier for businesses to operate and would bring down the
cost of moving goods across nation.
In conclusion, one clear picture
emerges that GST has significantly improved India's tax system. It has made tax
collection easier, brought more businesses into the economy, and reduced the
burden of multiple taxes. Overall, the previous studies provide valuable
insights into the economic and distributive effects of the Goods and Services
Tax; however, findings remain inconclusive regarding its combined impact on
relief, equity, and consumption. This gap justifies the need for further
empirical investigation.
Research Gap
Although many studies have examined
the Goods and Services Tax in terms of revenue growth, tax administration, and
overall impact on the economy(Bhattarai,
n.d.; Dandona & Gupta, 2024; Rajamani & Jayakodi, 2018; Satyajit
Mallick & Rashmi Tanwar, 2023; Sharma & Sharma, 2023; A. Yadav, n.d.)Very
few empirical studies have been done to look at its effects in a combined and
holistic manner(Garg
et al., 2025).
Recent discussions on GST 2.0 mainly focus on the rationalisation of rates and
simplification of tax slabs. However, limited research clearly evaluates the
structural changes that affect tax relief, equity, and household consumption simultaneously(Dr.
V. Lekha Prasath, 2026; Naik et al., 2025).
Most existing studies analyze these aspects
separately, without understanding their interconnected impact on different
income groups(Vipanshi
Agarwal, 2025; A. Yadav, n.d.).
Therefore, there is a need for a comprehensive socio-economic assessment of GST
2.0. The present study attempts to examine relief, fairness, and consumption
patterns in an integrated framework.
Objectives of The Study
The
present study has been conducted to understand the socio-economic impact of the
Goods and Services Tax (GST) in India. The study aims to address the following
objectives:
Research Methodology
The present study adopts a
descriptive and analytical research design to examine the socio-economic impact
of the Goods and Services Tax (GST) reforms in India. The descriptive approach
has been used to systematically analyze policy
developments, structural changes, and fiscal outcomes associated with the
implementation of GST.
The study is primarily based on
secondary data collected from official sources, including reports of the
Government of India, GST Council publications, Reserve Bank of India (RBI)
reports, Union Budget documents (2017–2026), Ministry of Finance publications,
research articles, and policy analyses. The study covers the period from 2017
to 2025, covering the initial implementation of GST (GST 1.0) and the
subsequent structural rationalization under GST 2.0.
Pre- and post-reform developments are
examined using comparative analysis and trend analysis. Changes in revenue
performance, tax base expansion, slab restructuring, and consumption trends are
analysed through year-wise data evaluation.
However, the study is limited by its
reliance on secondary data and does not incorporate primary survey-based
empirical testing. Therefore, findings are interpretative in nature and based
on available macro-level evidence.
Analysis and Discussion
Impact of GST on The Indian Taxation System
GST has impacted the overall Indian
taxation system. It improves the country's GDP ratio, and to a certain extent,
it also controls inflation. The implemented rates of GST provide great tax
increments to the government. (Shokeen et al., 2017)
The most important effect that can be seen with the introduction of GST was
that it eradicated the tax-on-tax system and the cascading effect; as a result,
this expanded the tax base by encouraging greater business participation in the
economy. Since the introduction of GST, the number of registered taxpayers has
increased at a high pace, from approximately 66.5 lakh in 2017 to over 1.51
crore by April 2025. The revisions are made time to time in GST, such as
enhancing the compliance procedure and introducing a technology-driven GST
framework, which led to a consistent rise in government revenue. For instance, In April 2025, a hit record was
made with the gross GST collections of around Rs. 2.37 lakh crore, which
demonstrates strong economic activity. (Dr.
V. Lekha Prasath, 2026)
The digital system, which includes online registration, e-filing of return and
the e-way bill system, has reduced evasion of taxes and brought transparency.
Source: Press Information
Bureau (Government of India)
Figure 1: Total GST Collection across the
Financial Years 2017-18 to 2025-2026(till January 2026)
GST simplifies India's tax structure by replacing all
previous indirect taxes. According to a report published by the National
Council of Applied Economic Research, GST has led to an increase in economic
growth by 0.9 per cent to 1.7 per cent. Exports are increasing by 3.2 per cent
to 6.3 per cent, while imports are also rising, likely by 2.4-4.7 per cent, the
study found.(Gupta,
n.d.)
GST and Tax Relief
GST offers long-term welfare benefits
to taxpayers. It increases the real disposable income of the taxpayer by
reducing taxes on necessities. With the merger of a large number of Central and
State taxes into a single tax system, the burden on producers has reduced, as
the incidence of tax is now shared by all stakeholders.(PDF, n.d.-a)
With development in the fields of employment, education, and infrastructure,
along with growing incomes, and an increasing number of organised retail and
digital platforms, rural markets have seen to be growing more rapidly than
urban ones. GST 2.0 aims to further strengthen this trend by reducing the tax
burden on necessary goods by making staples more affordable and accessible.
Food items, such as bread, buttermilk, milk, fresh fruits and vegetables, etc.,
are exempted under GST, hence ensuring to contribute towards zero hunger. Now,
GST 2.0 is viewed as a means to boost affordable
household welfare. A typical rural household on a purchase of essential goods
could see monthly savings of about 5%, which increases their purchasing power
and real income to spend on other needs too. This increases the volume of
consumption, thereby stimulating the FMCG sector’s growth. In this way, GST 2.0
supports consumption-driven economic growth by bridging the gap in spending
between urban and rural areas. (Vipanshi
Agarwal, 2025)
In addition, increasing economic
activity leads to higher growth rates and new employment opportunities, that
benefits the urban poor directly. Besides this, the services that contribute to
basic survival needs, such as the health sector and education sector services.
They are also exempt from being taxed under the GST framework. In order to make these services affordable to the poor.
Thus, GST reduces the tax burden by lowering the prices of goods consumed and
providing tax relief on necessary goods of daily consumption. (A.
K. Yadav & Kumar, 2018)
|
ITEM CATEGORY |
PREVIOUS GST |
NEW GST |
|
Ultra-High Temperature (UHT) milk |
5% |
0% |
|
Pre-packaged & labelled chena/paneer |
5% |
0% |
|
Pizza bread, khakhra, chapati/roti |
5% |
0% |
|
Paratha, parotta |
18% |
0% |
|
Tender coconut water (pre-packaged and labelled) |
12% |
5% |
|
Drinking Water (20 litre bottles) |
12% |
5% |
|
Condensed milk, cheese |
12% |
5% |
|
Jams, jellies, marmalades, purees, nut pastes |
12% |
5% |
|
Preserved vegetables and pickles |
12% |
5% |
|
Fruit & vegetable juices/drinks (fruit pulp
juices, nut juices, vegetable juice) |
12% |
5% |
|
Beverages containing milk, soya milk |
12% |
5% |
|
Ice cream and edible ice |
18% |
5% |
|
Plant-based milk drinks |
18% |
5% |
|
Soups and broths |
18% |
5% |
|
Soaps for washing/detergents (select categories) |
18% |
18% |
Source: The Economic
Times, 2024; The Times of India, 2024; Goods and Services Tax Council, 2025; ClearTax, 2024; Finvest, 2024
Table 2: GST Rationalisation for Everyday
Food Item
GST and Tax Equity & Transparency
GST Equity is not merely just a
principle; it is a structured design and a goal to ensure equity among
taxpayers. The principle of tax equity assures that those who consume more
commodities or consume luxury should contribute more to the economy by paying
more tax, while essential consumption should be protected. By moving everyday
food items into the lower slab and luxury products in higher slab, the
government aims to provide relief to households and growth opportunities for
industries, while simultaneously ensuring equity in the GST policy framework.
Transparency has been one of the
quiet but powerful reforms that GST brought along with it. Before GST, the
layered system of central and state taxes made it genuinely difficult for an
ordinary business owner — let alone a consumer — to understand exactly how much
tax was embedded in the price of any product. GST changed this by creating a
unified, digitally-driven system where every invoice
is recorded, every credit is matched, and every transaction leaves a trail.
The introduction of the GSTN portal
meant that filing returns, claiming input tax credits, and tracking compliance
all happened in one visible, auditable space. For the government, this meant
better data and fewer opportunities for tax leakage. For businesses, it meant
that the rules, rates, and obligations were at least knowable and consistent
across state borders. And for consumers, the single tax line on a bill —
however imperfect the system still is in practice — represented a more honest
picture of what they were actually paying.
Transparency in GST is still a work in progress, with challenges like fake
invoicing and return-filing gaps remaining real concerns, but the foundational
shift toward a system where transactions are visible and accountable marks a
significant step forward in building a more honest tax culture in India.
The technology advancement in the GST
reforms brings online registration and a digital invoicing system, have supress
the tax evasion practices and increased accountability of taxpayers. This has
helped in fostering a more equitable and competitive market environment, which
ensures that inflation that arises because of tax evasion will not target
rational consumers. GST has simplified the tax system and made pricing more
stable and transparent for consumers. (Sharma
& Sharma, 2023)
The Input Tax Credit (ITC) mechanism
allows businesses to reduce their output tax liability by the amount of tax
that is already paid by the taxpayer on their inward supplies. The main aim is
to eliminate the tax-on-tax or cascading effect, ensuring that a taxpayer only
pays tax on the value that adds to the supply chain. It allows service
providers to set off their tax to be paid on inputs against their final tax
liability, thereby reducing the overall tax burden and bringing transparency.
If a service provider pays tax on input goods or services, then they are
allowed to deduct that amount from the final tax they owe on the services they
provide. (Dr.
V. Lekha Prasath, 2026)
Illustration: A manufacturer buys raw
material for Rs.30,000 and pays Rs.1,500 in GST. The manufacturer sells the
finished product for Rs.35,000 and collects Rs.1,750 in GST from the customer.
The manufacturer can use the Rs.1,500 (input tax) to offset the Rs.1,750
(output tax). Thus, the net tax payable to the government is Rs.250.
GST and Consumption Patterns
Ramkumar and Chitra (2021) conducted
a quantitative study to analyze how GST affected
consumption patterns. It was revealed from the study that the relationship
between GST and Consumption is significantly positive. Ramkumar and Chitra
(2021) summarized the survey-based studies that show that generally, consumers
have a positive attitude towards GST as a simplified tool. Moreover, many
report shows the confusion about tax slab structures, tax incidence, and the
actual impact of changed prices of necessary goods.(Vipanshi
Agarwal, 2025)
Holistically, this tax reform shows a
clear consumer-centric approach, basic survival commodities are exempted from
being taxed, Staples are made affordable, and even Luxury goods have been made
more affordable to expand their market reach.
The revision of GST reform: the GST
2.0 (2025). Strengthen the Consumption patterns, Indian Express (The Indian
Express), and policy experts describe GST 2.0 as a “rate rationalisation” move
to blend the earlier tax structure of 5%, 12% 18% and 28% into 5% for essential
goods, 18% for standard goods, and 40% for luxury goods. Every
day commodities such as processed food, medicines, toiletries, and basic
personal care products have been shifted from the 12-18% slab into the lower
slab of 5%, while luxury products are now subject to a price hike of 40% rate.
GST 2.0 is an attempt to boost
consumption while maintaining fiscal stability by increasing taxes on harmful
goods. This reform is expected to increase disposable income with households,
specifically lower and middle-income consumers whose expenditure is largely on
necessities. and to stimulate demand in sectors like FMCG, autos, electronics,
and construction. Alongside, aggressively high taxation on harmful goods is
subject to lower consumption of harmful products and simultaneously recovers
the revenue losses on essentials.(Vipanshi
Agarwal, 2025)
In a budget constraint economy like
India, the Taxation policies and framework influence the economic conditions of
a country. Changes in tax policy also change the tax structure in the economy,
and India witnessed these changes at both levels of government. This analysis
is primarily concerned with tax structure and its subsequent effects on the
economy. The adequate tax structure provides a revenue-neutral tax policy so
that both the exchequer and the taxpayer are harmonized.(Dr
Kiran Kumar et al., 2025)
The revenue-sharing model of GST is designed to maintain a balance between the
central and state governments, ensuring the cooperative federal setup of
government (Kir, 2021). As a consumption-based tax, also called destination-based
tax, GST ensures that revenues are collected where goods and services are
consumed, which promotes fairness and equity in the distribution of resources
among states and the centre.
Findings of The Study
1. Structural
Transformation of The Indirect Tax System
The implementation of GST has
significantly transformed India’s old, rigid indirect tax regime into a
simplified and unified national tax framework. The removal of the cascading
effect of taxes and integration of dual central and state levies enhanced tax
efficiency(Dr.
V. Lekha Prasath, 2026).
This structural change in Tax reform improves the government revenue, along
with reducing prices; both parties are harmonized.
Source: Union Budget
Document, Published by the Ministry of Finance, Government of India
Figure 2: GST 2.0 Reforms and Impact
2. Expansion
of The Tax Base and Formalization
Figure
3: Tax Buoyancy in India during 1981-82 to 2018-19 Figure
4: Gross Collection of GST from 2023 to 2026
This indicates that the number of
taxpayers has significantly increased over the years, which led to more revenue
generation for the government and thereby increased the tax base. The digital
integration in the GST reform has reduced the paperwork, and the process to
comply with tax obligations has become much easier than before. The
technology-driven framework (online returns, e-way bills, and ITC matching) has
strengthened revenue monitoring and reduced tax evasion.(Satyajit
Mallick & Rashmi Tanwar, 2023; Udai et al., 2019)
3. Improvement
in Revenue Performance
GST collections have shown a
consistent upward trend over the years, which demonstrates that the compliance
procedure is easy and accessible to the taxpayer, leading to an increase in
government revenue. Revenue receipts of the government have significantly
increased after the implementation of GST(Naseer
A. Khan2, n.d.).
This steady rise in tax collection reflects improved compliance, enhanced
transparency, and greater efficiency in the indirect tax system.
Figure
6: Revenue Performance after GST Implementation Figure
5: Share of Indirect Taxes in Gross Tax Revenue
This suggests that GST has strengthened fiscal
capacity without significantly increasing the direct tax burden.
4. Tax
Relief on Essential Goods
The relief and lower tax slabs for the
commodities that are necessary for survival, such as food items, healthcare,
and education services, have resulted in increasing the real disposable income
of taxpayers. Moreover, the rationalization of GST 2.0’s rate enhances the affordability
of daily consumption goods.(Dr.
V. Lekha Prasath, 2026; Vipanshi Agarwal, 2025)
5. Strengthening
of Tax Equity
The new two-slab structure promotes
the principle of equity as the essential goods, such as Food items and health
care services, are taxed at a lower or zero rate. Standard goods are taxed at a
moderate tax rate of 5% to 18%. Further, Demerit or Sin goods are taxed at a
higher tax rate of 40%. (Vipanshi
Agarwal, 2025)This
design supports equitable tax contribution based on consumption capacity.
6. Impact
on Consumption Patterns
The study shows that GST has had a significant
positive influence on consumption behaviour, particularly in the FMCG sector. GST
2.0 leads to an increase in demand as tax rates are reduced, and on the
contrary, it shows a decline in the consumption of harmful commodities due to
higher tax rates.(Naik
et al., 2025; Vipanshi Agarwal, 2025)
7. Transparency
and Digital Governance
Source: Union Budget
Document, Published by the Ministry of Finance, Government of India
Figure 7: Expansion of E-Way Bill
Transactions
This has increased the accountability of taxpayers and
reduced practices that lead to tax evasion.
Persistent Challenges
GST, despite having positive impacts
on the economy, has certain challenges that remain a hindrance to the smooth
flow:
Filing of GST involves several technical
steps, which lead to high compliance costs for small and medium enterprises.
Frequent technical glitches on the portal make it difficult for small and
medium enterprises to complete the GST compliance procedure.
The multi-tax slab
system of GST makes the filing of tax complex. As the taxpayer will face
difficulty in understanding and classifying the tax slabs, according to the
government’s regulations.
India adopted a dual GST Concept due
to its constitutional framework of federal setups of government taxes are
charged at both the state and central levels. Thus, the Business Enterprises
that are running in multiple states have registered separately in each state
for GST compliance. These multiple registrations may add administrative burden
and increase the compliance cost for GST.
The successful implementation of GST
heavily relies on a robust technological framework, but the lack of technological
familiarity among businesses and disparities in technological adoption in rural
areas obstruct the smooth functioning of the GST network
Thus, while GST has enhanced
efficiency and equity, continuous structural refinements are required.
Policy Implications and Recommendations
The findings of the study indicate
that the Goods and Services Tax (GST) has significantly improved transparency
in the taxation system and expanded the tax base in India. However, some policy
challenges remain. One major concern is the possible revenue loss that may
arise due to rate rationalisation and exemptions on several goods. This may
create financial pressure for both the central and state governments.
Therefore, continuous review of tax rates and exemptions is necessary to
maintain a balance between revenue generation and consumer welfare.
Further, a clear classification of
goods and services is important to minimize confusion related to tax slab
rates. The clear tax rates make it easier for businesses to comply with the tax
system. The Input Tax Credit (ITC) mechanism needs to be more strengthened so as to ensure a smooth flow of tax credit and to reduce
the cascading effects of tax.
The government should also focus on
improving digital tax administration. Particularly, better use of technology
and data systems within the GST Network (GSTN). This will lead to an increase in
tax compliance and reduce tax evasion. Besides this, the GST Appellate Tribunal
(GSTAT) will have to be fully functional in all the states so that it can help in
resolving tax disputes more quickly and improve taxpayer confidence.
Finally, special attention is needed
for Micro, Small, and Medium Enterprises (MSMEs) by providing simplified
compliance procedures and policy support so that small businesses can adapt to
the GST reforms more easily.
Conclusion
Before GST, India had a very
complicated tax system. Multiple taxes were charged at different stages before
it reached the customer. This complicated the process and increased the cost of
the product.
To solve this problem and strengthen
the taxation system, all indirect taxes were merged into a single, unified and
simplified tax system, GST. Which means buying goods or services anywhere
across the country applies the same tax rule. This made things simpler and
fairer for everyone.
One of the biggest benefits of GST was
the removal of the cascading effects of taxes. Before this, tax on tax was
charged, which increased the prices unnecessarily. GST eliminated this problem.
Businesses now pay tax only on the value they add. This keeps costs under
control. A taxpayer can also claim back the tax credit if the tax is paid
multiple times, which reduces the tax burden and provides relief.
With the inception of GST, It is seen that the number of businesses officially
registered has increased at a high rate. Small traders and shops that
previously operated outside the system now register themselves. This expanded
the tax base and thereby generated more revenue for the government. More people
paying taxes means more revenue and, thereby, more expenditure on public
services like roads, schools, and hospitals.
With the integration of digital
technology in GST, from filing returns to claiming refunds, everything happens
online. This reduces paperwork, and also the scope to
hide transactions or evade taxes has been significantly reduced. The system
becomes more transparent and accountable, but on the contrary side, the
technological framework makes the procedure to file a tax complex, and it
increases the cost of compliance.
The GST framework promotes equity by
lowering the tax rate on. Essential items like food, medicines, and healthcare,
and moreover, exempting the tax levied on the commodities that are necessary
for basic survival. This led to an increase in the income of poor and
middle-class families.
GST reforms were revised in September
2025. Now, the new GST reform is GST2.0, which aims to make the system even
better. One of the main goals is to simplify the tax slabs. Previously, goods fell
into multiple rate categories. This creates confusion. Reducing the number of
slabs will simplify things and make it easier to understand.
GST 2.0 promotes fairness by lowering
taxes on essential goods and charging high taxes on luxury items. This ensures
that those who can afford more contribute more to the economy.
However, challenges remain.
Compliance needs to become simpler, especially for small businesses. Tax
evasion must be tackled more effectively. Policies must keep changing with economic
realities.
Despite these challenges, GST has
laid a strong foundation. It has made India's tax system more modern, more
efficient, and more just. In the taxation history of India since the economic
liberalisation of 1991, India sees the hike in the GDP.
Conflict
of Interest: The corresponding author on behalf
of second author, confirms that there are no conflicts of interest to disclose.
Copyright:
© 2026 by Namra Rafat, Dr. Zaibun Nisa Authors retain
the copyright of their original work while granting publication rights to the
journal.
License:
This work is licensed under a Creative Commons Attribution 4.0 International
License, allowing others to distribute, remix, adapt, and build upon it, even
for commercial purposes, with proper attribution. Author(s) are
also permitted to post their work in institutional repositories, social media,
or other platforms.
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