Goods & Services Tax (GST), Year, Framework, Achievements, Challenges, UPSC Notes!

The Goods and Services Tax (GST) is India’s biggest indirect tax reform, introduced through the 101st Constitutional Amendment Act, 2016. It replaced multiple central and state taxes with a single, destination-based tax on the supply of goods and services. GST is levied at different slabs (0%, 5%, 12%, 18%, and 28%) and is regulated by the GST Council, a joint forum of the Centre and States. This landmark reform has simplified India’s tax structure, reduced cascading of taxes, boosted compliance, and continues to evolve with regular updates and rate revisions.

GST is important from the perspective of UPSC IAS Examinations and falls under the General Studies Paper 3, particularly under the economy section. 

In this article we shall discuss in detail about the GST, its features, its legislative basis, its council, its reform, its advantages, its disadvantages and its challenges.

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What is the Goods and Services Tax (GST)?

GST is a tax levied when a consumer purchases goods or services. It is meant to be a single, comprehensive tax that will subsume all the other smaller indirect taxes on consumption life service tax, etc.

• The taxes are included in the final price and are to be paid by the consumers at point of sale and passed on to the government by the seller.
• The GST is a common tax used by the majority of countries globally.
• It is a single tax on the supply of goods and services right from the manufacturer to the end consumer.
• More than 160 developed countries implement this system of taxation.
• The GST is usually taxed at a single rate across the nation.

Evolution of GST in India

The journey of the Goods and Services Tax (GST) in India began in the year 2000 with a proposal to create a unified tax system. Over many years, there were several discussions and changes to get this idea ready. In 2009, a detailed plan was released. Finally, in 2016, the Indian Parliament passed the 101st Constitution Amendment Act, which made it possible to introduce GST. The GST was officially launched on July 1, 2017, with the goal of creating a "One Nation, One Tax" system by replacing many different Central and State taxes.

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Constitutional Framework for Goods and Services Tax

To make GST possible, the Indian Constitution was changed. The key change was the 101st Constitution Amendment Act, 2016. This amendment added a new Article, Article 279A, which created the GST Council. The GST Council is a joint group of the Central and State governments. Its job is to make recommendations on important GST-related matters like tax rates, rules, and exemptions. This setup ensures that both the Central government and the States have a say in how the tax system works, showing a spirit of cooperative federalism.

Legal Framework for Goods and Services Tax

The legal foundation of GST in India is built on several laws that were passed after the constitutional amendment. These include:

• Central Goods and Services Tax (CGST) Act, 2017: This law governs the tax collected by the Central Government on goods and services within a state.
• State Goods and Services Tax (SGST) Act, 2017: Each state passed its own SGST Act to collect tax on goods and services within that state.
• Integrated Goods and Services Tax (IGST) Act, 2017: This law deals with the tax on goods and services that are supplied from one state to another.
• GST (Compensation to States) Act, 2017: This law was created to compensate states for any loss of revenue they might face in the first few years of GST implementation.

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The main features of Goods and Services Tax are as follows:

• Dual GST- India has adopted a dual GST system. There would be 2 components of GST i. e. central GST (CGST) and state GST (SGST). Center will collect CGST and states/union territories would collect SGST/UTGST on all transactions of supply of goods or services or both. owing to 101st constitutional amendment, central as well as the union territories could simultaneously wide tax on supply of goods and services./
• Applicable on supply side- GST is applicable on “supply” of goods or services as against the old concept on the manufacturer Of goods or on sale of goods or on provision of services.
• Destination based taxation- GST is based on the principle of destination-based consumption taxation as against the present principle of origin-based taxation.
• GST rates to be mutually decided- CGST, SGST & IGST are levied at rates to be mutually agreed upon by the center and the states on the recommendation of the GST council.
• Multiple Rates- GST was levied at four rates viz. 5%, 12%, 16% and 28%.The list of items that fall under these multiple slabs are worked out by the GST council.

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Components of GST

GST is not a single tax but is made up of four different parts, depending on where the goods or services are being supplied. This system is known as a Dual GST model, where both the Central government and the State governments can levy a tax.

1. Central Goods and Services Tax (CGST): This is the tax collected by the Central Government on all goods and services sold within a single state (for example, a sale from a shop in Bengaluru to a customer in the same city).
2. State Goods and Services Tax (SGST): This is the tax collected by the State Government on all goods and services sold within the same state.
3. Integrated Goods and Services Tax (IGST): This tax is collected by the Central Government on all sales of goods and services between different states (for example, a sale from a business in Bengaluru to a customer in Chennai).
4. Union Territory Goods and Services Tax (UTGST): This is similar to SGST but applies to sales of goods and services within Union Territories like Chandigarh, Lakshadweep, and Andaman and Nicobar Islands.

Some of the major achievements of the GST include:

• Stronger Revenue Collection: The GST has significantly boosted the government's income. In the financial year 2024-25, the total collection was a record-breaking ₹22.08 lakh crore, with an average monthly collection of ₹1.84 lakh crore.
• Wider Taxpayer Base: The number of registered taxpayers has grown a lot. As of April 30, 2025, there were over 1.51 crore active GST registrations, a big jump from the 65 lakh in 2017. This shows that more businesses are now part of the formal economy.
• Digital Transformation: GST has moved tax compliance to a digital platform. Over 95% of all tax filings are now done online, which has made the process faster, more transparent, and has helped reduce errors and fraud.
• Reduced Logistics Costs: By creating a "One Nation, One Tax" system, GST has removed many checkpoints at state borders. This has led to lower transportation costs and quicker delivery of goods.
• Efficient Refunds for Exporters: The process for getting tax refunds has become faster. For example, integrated GST (IGST) refunds for exporters are now processed quickly, with ₹1.18 lakh crore disbursed in the financial year 2025.

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The advantages of goods and services tax are as follows:

• Transparent Tax System: GST replaces multiple indirect taxes with a single tax, making the system simpler and more transparent.
• Simplified Taxation: It removes the need to separately calculate taxes on goods and services, reducing administrative complexity and compliance costs.
• Integration of Goods & Services: As production and distribution increasingly involve both goods and services, GST provides a unified tax structure.
• Corruption-Free Administration: Greater reliance on technology and reduced human interface makes tax administration more transparent and less prone to corruption.
• Unified National Market: GST creates a single common market, boosting Make in India and attracting more foreign investment.
• Benefit to States: Since GST is a destination-based tax, consuming states gain more revenue, supporting balanced regional development.
• Ease of Doing Business: It lowers the overall tax burden, reduces the multiplicity of taxes, and simplifies procedures for registration, returns, and payments.
• Employment & Poverty Reduction: By boosting investment and business activity, GST indirectly generates jobs and resources for poverty alleviation.

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Disadvantages of GST

The disadvantages of GST are as follows:

• Impact on Real Estate: GST may increase the cost of new homes by up to 8%, reducing demand in the housing sector by around 12%.
• Question of Tax Simplification: Critics argue that CGST, SGST, and IGST are just new names for old taxes (Excise, VAT, CST), and thus do not fully eliminate tax layers.
• Transition Challenges: Migration to the GST system involved technical and operational difficulties for businesses and administrators.
• Higher Aviation Taxes: Airfares may become costlier as GST rates (around 15%) are higher than the earlier 6–9% service tax.
• Impact on Essentials: Some basic goods (like garments) that earlier had lower taxes became more expensive under GST, affecting consumers.

Key Challenges in the Current GST Framework

The current GST framework faces the following challenges:

• Multiple Tax Slabs: The current system has multiple tax rates (5%, 12%, 18%, and 28%), which can be confusing for businesses and lead to disputes over how to classify different products.
• Complex Compliance: Despite the move to a digital system, filing multiple returns every month can be a heavy burden for small and medium-sized businesses that may not have the resources to handle it.
• Exclusion of Key Items: Important items like petrol, diesel, and alcohol are still outside the GST system. This breaks the seamless tax chain and prevents businesses from claiming tax credits on these products.
• Technical Issues: The GST Network (GSTN) has faced some technical problems, such as slow servers and glitches, which have sometimes made it difficult for businesses to file returns on time.

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What Reforms can be Implemented to Improve the Current GST Framework?

To make GST even better, several reforms can be put in place:

• Fewer Tax Slabs: Simplifying the tax structure to a two-slab system (e.g., 5% and 18%) would make it easier to understand and reduce disputes.
• Inclusion of Excluded Items: Bringing products like petrol, diesel, and alcohol under GST would complete the tax chain and make the system more efficient.
• Simpler Filing: Introducing a single, simpler return form for all taxpayers would reduce the compliance burden, especially for small businesses.
• Faster Dispute Resolution: Setting up a proper GST Appellate Tribunal would help resolve tax disputes faster and provide more certainty for businesses.
• Amnesty Schemes: Offering amnesty schemes for minor compliance mistakes would help businesses that are new to the system and encourage them to follow the rules better.

We hope all your doubts regarding the Goods and Services Tax (GST) are addressed after going through this article.Testbook provides comprehensive notes for different competitive examinations. It has always assured the quality of its product like content pages, live tests, Gk and current affairs, mocks and so on.Ace your UPSC preparation with the Testbook App!