More Stories

Informist, Wednesday, Sept. 10, 2025

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI – Preliminary calculations by the finance ministry suggest that the average monthly goods and services tax collections may be around INR 2.20 trillion in 2026-27 (Apr-Mar), owing to robust consumption demand even as the average GST rate after the recent reforms is expected to be around 10%, a senior official said. "Given the consumption pattern of FY24 and the new GST tax rates, average monthly collections should be around INR 2.10 trillion – INR 2.20 trillion," the official told Informist. 

 

In the current financial year so far, monthly GST collections have averaged around INR 2 trillion, although the data is skewed as the first two months of the financial year saw a surge in collections and a dip is expected in September and October's collections because of the tax changes. "A clearer picture will be available from the January collection figures," the official said.

 

The GST Council last week overhauled the indirect tax regime by collapsing the four-slab GST structure of 5%, 12%, 18%, and 28% to a two-slab structure of 5% and 18%. The council also introduced a new GST rate of 40%, to be imposed on sin and luxury goods. All new rates, except for those on tobacco products, will take effect from Sept. 22. The GST Council anchored the tax changes and the the overall implication of the move based on FY24 consumption data, which is the last available full year bifurcated data on item-wise GST spent by consumers. 

 

According to the official, the net revenue implication of a loss of INR 480 billion from the changes in GST rate and structure will be well compensated by uptick in domestic demand. "It is also expected that the 40% GST rate will lead to good revenue generation," the official said.

 

Items in the 40% slab include aerated drinks, non-alcoholic beverages, caffeinated drinks, big cars and bikes, aircraft for personal use, yacht, revolvers and pistols, tobacco products, among others. Items under the 40% bracket previously fell under the 28% GST slab with GST compensation cess levy on them.

 

The GST compensation cess was introduced to bring states on board to adopt the GST regime in 2017. The Centre had promised to protect 14% revenue growth for states for the first five years by levying a compensation cess on certain luxury goods, including motor vehicles, expensive motorcycles, caffeinated beverages, and sin goods such as tobacco items and pan masala. Initially set to expire in June 2022, the cess was extended until March 2026 to repay INR 2.69 trillion in loans taken by the Centre to partly bridge the revenue shortfall of states during the COVID-19 pandemic.

 

The GST compensation cess levy will be discontinued from Sept. 22 on all items except for tobacco products, on which it will be levied till the time the loans taken to compensate states are repaid. According to Finance Minister Nirmala Sitharaman, the cess will be discontinued "well within this calendar year" for tobacco products. 

 

"Other GST reforms like easy compliance, simplification of processes and reduction in classification disputes will further lead to widening of tax net and therefore, better revenues," the official added. 

 

As per Bank of Baroda economists, the net revenue gain on account of rise in consumption from the GST changes will be INR 700 billion – INR 1 trillion which amounts to 0.2-0.3% of GDP, anticipated from September. "The impact might even be higher since the savings to consumers in terms of cess might also be translated into consumption demand," the bank's economists said in a research note. 

 

The GST Council segmented the two broad GST slabs on the tenets of 'merit' and 'standard', putting majority of common-use items in the 5% slab, thereby bringing down the effective average GST rate. A host of white goods, especially consumer durables like washing machines and big televisions were also moved to the 18% slab from 28%, thereby lowering the average GST rate. 

 

As per the last available public data, the average GST rate for FY24 was 11.64%, much lower than the revenue neutral rate of 15.0%-15.5% assumed at the time of introduction of the GST regime in 2017. A committee headed by the then chief economic adviser Arvind Subramanian had suggested a revenue neutral rate of 15.0-15.5%. In FY24, 70-75% of the total GST collections came from 18% slab, followed by 13-15% coming from the 28% slab, 6-8% coming from the 5% slab and 5-6% coming from 12% slab.   End

 

Edited by Vandana Hingorani

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel+91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.