Indian Economy · IndEco0081
GST Council and Rate Rationalisation
The Goods and Services Tax (GST) Council is a constitutional forum where the Union and states discuss GST policy. It recommends tax rates, exemptions and rules.
Rate rationalisation means changing tax rates to make the system simpler or fairer. A Council decision is a recommendation. The legally notified rate tells a seller what to charge.
At a Glance
- The Council was constituted on 12 September 2016, under Article 279A.
- GST launched nationwide on 1 July 2017, replacing many central and state taxes.
- The 56th Council meeting on 3 September 2025 approved “GST 2.0”, a major rate simplification.
- Most revised rates took effect on 22 September 2025. Two main slabs remain: 5% and 18%, plus a 40% special rate.
- GST Council
- The Union-and-states forum under Article 279A that recommends GST rates and rules.
- Rate rationalisation
- Simplifying or resetting tax rates, as the 2025 reform did.
- Quorum
- The minimum attendance — one-half of members — needed for a Council meeting.
- Cess
- An added levy collected for a stated purpose, such as GST compensation.
- Input tax credit
- A deduction for GST already paid on inputs, against GST due on sales.
- GSTAT
- The GST Appellate Tribunal, which hears tax appeals — separate from the Council.
Contents
How GST and the Council Began
- 2016: The 101st Constitutional Amendment added Article 279A. The Council was constituted on 12 September 2016.
- 1 July 2017: GST began across India. It replaced many central and state indirect taxes on goods and services.
- 3 September 2025: The Council recommended a major change to the main rate structure at its 56th meeting.
- 22 September 2025: Most revised rates took effect. Some tobacco changes took effect later.
The Constitution, Article 279A sets the Council’s role. The 56th meeting release explains the 2025 reform.
Who Sits on the Council and How It Decides
Must Know
Members, advice and the law
The Union Finance Minister chairs the Council. The Union Minister of State for Finance or Revenue also sits on it. Each state government nominates a minister.
Article 279A asks the Council to recommend rates, exemptions, thresholds and other GST matters. Its discussions join national and state interests. See Article 246A and GST lawmaking.
A press release can announce a proposed change. Sellers should check the later law and rate notification for the effective date.
Quorum and weighted votes
Quorum is the minimum attendance needed for a meeting. At least half of all Council members must attend.
The Council often seeks agreement. When it votes, a decision needs at least three-fourths of the weighted votes cast by members present and voting.
| Voters | Share of weighted votes cast | Can pass a disputed decision alone? |
|---|---|---|
| Union government | One-third | No |
| State governments together | Two-thirds | No |
| Required majority | At least three-fourths | Needs support across both sides |
These shares are weights, not shares of tax revenue. Each state does not hold two-thirds. The states hold that share together.
QUICK CHECK 1 OF 9 · TRUE OR FALSE
The GST Council exists under Article 279A of the Constitution.
True. The 101st Amendment added Article 279A, and the Council was constituted in 2016.
QUICK CHECK 2 OF 9 · TRUE OR FALSE
The 2025 reform left only two possible GST treatments for every supply.
False. Five and eighteen percent are main rates. Exemptions, a special forty percent rate and exceptions remain.
Read Rates, Exemptions and Receipts Correctly
Good to Know
What the 2025 rate change did
Before September 2025, the four main positive rates were 5%, 12%, 18% and 28%. Exemptions and special rates also existed.
The 56th Council meeting recommended two main rates: 5% and 18%. It also recommended a 40% special rate for selected goods and services.
| Before reform | After main 2025 reform | What to remember |
|---|---|---|
| Four main positive rates | Two main positive rates | 5% and 18% are the main rates. |
| Nil or exempt supplies | Nil or exempt supplies continue | Exempt does not mean a 5% rate. |
| Special rates and compensation cess | 40% special rate and some exceptions | Not every sale uses 5% or 18%. |
For example, the 2025 package exempted individual life and health insurance. It reduced rates on several household items. Exact product treatment depends on its classification and notification.
Several tobacco changes took effect on 1 February 2026. Those products need their own dated rate check. See the Council’s December 2025 newsletter.
Two invoices and one price question
A sale within one state generally has Central GST and State GST. A sale between states generally has Integrated GST. See Article 269A and interstate GST.
Input tax credit lets an eligible business deduct GST paid on inputs from GST due on sales. That helps reduce tax charged on earlier tax.
Suppose a product’s GST rate falls from 12% to 5%. Its final price can fall if the seller passes the saving on. The final price does not change automatically.
A lower rate may simplify classification and help buyers. It may also reduce tax per sale. Total revenue depends on prices, sales, compliance and credits.
Petroleum and alcohol follow different rules
Alcoholic liquor for human consumption is outside GST’s constitutional definition. States may tax it under their own laws.
Five petroleum products have a different status. They await a Council-recommended date for GST levy. These are crude oil, petrol, diesel, natural gas and aviation turbine fuel.
Don’t mix these up: alcohol is constitutionally excluded from GST, while petroleum products are constitutionally within GST’s reach but await a Council-recommended start date. Read the Council’s GST FAQ and 101st Amendment.
QUICK CHECK 3 OF 9 · TRUE OR FALSE
At least half of all GST Council members must attend for a quorum.
True. Article 279A sets quorum at one-half of total membership.
QUICK CHECK 4 OF 9 · TRUE OR FALSE
The Union government holds one-third of the Council vote weight.
True. States collectively hold two-thirds. A decision needs at least three-fourths of weighted votes cast.
Federal Choices, Compensation and Effects
Great to Know
Compensation, cess and state concerns
States gave up several taxes when GST began. The 2017 compensation law promised payments for revenue loss during the first five years, through June 2022.
A cess is an added levy for a stated purpose. GST compensation cess helped fund those payments. Its collection later continued to repay borrowing used during the pandemic.
The five-year compensation promise ended in 2022. That did not mean every compensation cess ended that day. Later rate changes also changed some cess treatment.
States still discuss revenue needs, rate changes and whether petroleum should enter GST. A lower rate may help consumers. It may also worry a state that needs tax revenue.
Read the GST Compensation to States Act and the 45th Council decision.
Mohit Minerals: recommendation is not command
Article 246A gives Parliament and state legislatures power to make GST laws. The Council recommends a common path, but it does not replace those lawmakers.
In Union of India v. Mohit Minerals (2022), the Supreme Court held that Council recommendations do not bind legislatures as constitutional commands.
The Court also explained a limit to this rule. A GST statute can require a Council recommendation before a government makes a particular rule or notification.
So, “recommendatory” does not mean “legally irrelevant.” Check the Constitution and the specific GST Act. Read the Supreme Court judgment.
Benefits, limits and institutions
A common tax framework can ease interstate trade. Fewer main rates can reduce some classification disputes. Digital invoices can help trace eligible credits.
These benefits depend on clear rules and working systems. Businesses still face filing costs and disputes. A rate cut alone cannot fix the current account deficit.
The GST Appellate Tribunal (GSTAT) hears tax appeals. It is separate from the Council. The Council discusses policy; it does not decide each taxpayer’s appeal.
GST also differs from the older Article 301 trade freedom. The Kelkar task force helped shape early GST proposals.
Think it through. Why can a Council recommendation guide states without binding their legislatures?
Show the explanation
Union and state ministers negotiate a shared plan. Legislatures still make laws. Statutes can require a recommendation before specific rules or notifications.
QUICK CHECK 5 OF 9 · TRUE OR FALSE
The Supreme Court said Council recommendations bind Parliament and state legislatures in every GST law.
False. Mohit Minerals called them recommendatory for primary lawmaking. A statute can still require a recommendation for particular rules.
Exam Angles and Common Traps
Exam Angle
What earlier questions test
UPSC Civil Services Preliminary 2017, Q81:
A unified national market was the defensible GST advantage. Large claims about foreign reserves or overtaking another economy were distractors. Read the question.
UPSC Civil Services Preliminary 2018, Q97:
The question contrasted exempt goods with canned fish. Product form changes tax classification. Read the question.
The exam lesson is to read the supply and the date. A processed product need not share the rate of its fresh version.
Five quick distinctions
- The Council recommends. A statute or notification gives a rate legal effect.
- Union and states share weighted votes. They do not each hold an equal national share.
- Two main positive rates do not mean only two possible tax treatments.
- Petroleum’s pending entry differs from alcohol’s constitutional exclusion.
- GSTAT hears appeals. The Council discusses GST policy.
QUICK CHECK 6 OF 9 · TRUE OR FALSE
Alcohol for human consumption and petrol have identical constitutional GST status.
False. Alcohol is excluded from GST. Petrol awaits a Council-recommended GST levy date.
Current Reforms and Primary Sources
Current Affairs
Nine years of GST: read dated numbers
A June 2026 Finance Ministry backgrounder marked nine years of GST. It said 17 taxes and 13 cesses were subsumed in 2017.
Registered taxpayers rose from 66.5 lakh in 2017 to 1.65 crore by May 2026. Gross collections rose from about ₹7.4 lakh crore in 2017–18 to ₹22.27 lakh crore in 2025–26.
These figures describe registration and gross tax receipts. They do not prove that each household paid less or every business found filing easier.
How to follow a new rate proposal
First, read the Council’s role and meeting recommendation. Next, find the relevant rate notification and start date.
Then check whether the supply is exempt, in a main slab or in a special category. For a legal dispute, read the Act and the Mohit Minerals judgment.
The rate structure can change again. A current proposal should never be treated as an already effective rate.
QUICK CHECK 7 OF 9 · TRUE OR FALSE
Individual life and health insurance exemptions were part of the 2025 rate package.
True. The 56th Council release lists those exemptions, with the revised rates starting in September 2025.
QUICK CHECK 8 OF 9 · TRUE OR FALSE
The GST Appellate Tribunal and the GST Council perform the same function.
False. The tribunal hears appeals. The Council discusses and recommends GST policy.
QUICK CHECK 9 OF 9 · TRUE OR FALSE
The five-year state compensation promise ended in 2022, but cess collection could continue for borrowing repayment.
True. The compensation period and the later cess collection period had different purposes.
Test Yourself
Try 8 practice questions on the GST Council and rate rationalisation.
Question 1 of 1 Question 1 of 1 Question 1 of 1 Question 1 of 1 Question 1 of 1 Question 1 of 1 Question 1 of 1 Question 1 of 1
How did you do?
Answer the quick checks throughout this lesson to see your score.
Your score lasts until you reload this page.
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