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Informist, Friday, Jan. 2, 2026

 

By Priyasmita Dutta

 

NEW DELHI – Goods and services tax collections during Oct-Dec--the first three full months after sweeping changes in GST rates were announced in September--grew a meagre 0.7% on year, failing to impress experts and policymakers who were betting on consumption demand to drive collections. According to finance ministry officials, they found the December data somewhat disappointing, as it pointed towards an extended period of lull in collections before they pick up again. 

 

"Some spark in pent-up demand was seen in October, but it was also a month packed with festivals, while November had an adverse base effect, but December collections should have been better," a finance ministry official said. During Oct-Dec, GST collections totalled INR 5.50 trillion. 

 

GST collections in October grew 4.6% on year, the slowest pace of on-year growth since June 2021, when the GST mop-up rose only 2.1% as movement restrictions were re-introduced due to the COVID-19 pandemic. The sluggish pace in collections was despite the festival season and its related consumption arriving two weeks earlier than in 2024 and entirely in October this year. In November, GST collections fell 4%, the first fall on a year-on-year basis in over six years. In December, total collections, including cess, grew 1.3% on year to INR 1.79 trillion, data released Thursday showed.

 

The lacklustre collections come after the GST Council in September overhauled the indirect tax structure—the four slabs of 5%, 12%, 18%, and 28% were collapsed into two slabs of 5% and 18%, effective Sept. 22. The Council segmented the two broad GST slabs on the tenets of 'merit' and 'standard', putting a 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 moved to the 18% slab from 28%, thereby lowering the average GST rate.

 

According to Vivek Jalan, partner at Tax Connect Advisory Services, the impact of "GST 2.0" rate reduction explains the degrowth of 5.1% on year in net GST domestic collections in December. "Further, GST 2.0 has created or deepened an inverted duty structure in many sectors like packaging, farming, pharmaceuticals, etc. All such taxpayers had applied for inverted duty refunds in November 2025 and received the same in December 2025, impacting the GST collections further," Jalan said. Refunds in December rose sharply by 31% on year, pulling down net GST collections by 5.1% on year to INR 1.042 trillion.

Cumulatively, GST collections in the nine months of 2025-26 (Apr-Mar) grew 6.7% on year to INR 17.44 trillion, trailing the 10.9% growth projected in the Budget for the current fiscal year. The changes to the GST regime are expected to have a net revenue impact of around INR 480 billion annually. Last month, Nomura had said that the fiscal impact of GST rate changes was around INR 240 billion in November, with the Centre bearing a "modest" fiscal impact of INR 140 billion-INR 150 billion. 

 

"It is a matter of concern that 17 states, including Delhi(-4%), Bihar(-7%), Madhya Pradesh (-1%), Telangana (-3%) and Tamil Nadu (-3%) have recorded a negative growth in GST collections," M.S. Mani, partner at Deloitte India, said on the latest GST data. "Many large states such as Maharashtra (4%), Karnataka (5%), Andhra Pradesh (2%), and Haryana (1%) have recorded low single-digit growth and very few states have registered a good positive growth as evidenced in the earlier part of the current fiscal year." 

 

During December, of the total INR 1.79 trillion collection, central GST collections accounted for INR 343 billion, state GST collection was INR 414 billion, and integrated GST mop-up was INR 989 billion. 

 

As such, there seems to be a difference in opinion in policy circles and among tax experts on whether the year-on-year comparison in GST collections makes sense, given the GST compensation cess component has been largely discontinued from Sept. 22, and continues only as a transitory arrangement till entire loan and interest liabilities are cleared.

 

According to the finance ministry official mentioned above, the effective GST rate changes should be treated on a gross level – including collections from compensation cess – as the year-on-year comparison in GST collections for Oct-Dec takes into consideration the GST rate changes, which in effect points to an incomparable base. "Multiple items that attracted 28%+compensation cess, now attract 40% GST. Those items are being covered in less-cess data, then this also is not fair," the official said. 

 

A second official said the compensation cess never added any fiscal value as it was levied only for repayment of loans, so it should be kept out of the collection comparison to analyse trends and behaviour of GST, which in itself is a consumption-driven tax. 

 

If we look exclude the compensation cess, GST collections during Oct-Dec were up 4.8% on year. This paints a more hopeful picture of how collections are growing, and reflects a better consumption demand scenario.

 

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. 

 

	Q3 FY26 (in INR bln)	Q3 FY25 (in INR bln)	% growth
GST Collections	5,329.50	5,083.68	4.8
Cess Collections	171.19	381.04	(-)55.1
Gross GST collection	5,500.69	5,464.72	0.7

 

End

 

Edited by Tanima Banerjee

 

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