GST Revenue Trends and State-Wise Impact in India 2025

The Government of India recently announced the Goods and Services Tax (GST) revenue collection for October 2025. GST, introduced in 2017, remains a landmark reform in India’s indirect tax system. October 2025 recorded a total GST revenue of Rs 1,95,936 crores, marking a 4.6% increase from the same month in 2024. This rise was partly driven by festive spending during Diwali. However, the state-wise distribution of this revenue reveals a mixed picture, with some states gaining while many others face declines.

Overview of GST and Its Role

GST replaced multiple indirect taxes like excise duty, central sales tax, and value-added tax. It aimed to unify the tax structure across states and the central government. This reform simplified compliance and aimed to increase tax transparency. GST is a consumption-based tax levied on the supply of goods and services.

October 2025 GST Revenue Performance

October 2025 saw revenue boost, with Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Haryana contributing over 40% of the total GST collections. These states are major industrial and service hubs, reflecting their economic activity and consumption patterns. The overall 4.6% growth indicates positive economic momentum during the festive season.

State-Wise Disparities in GST Collections

Despite the overall increase, 20 states and union territories experienced a contraction in GST revenues in October 2025. This uneven growth marks regional economic variations and differing impacts of GST on state finances. Some states have struggled to match their pre-GST tax revenue levels, affecting their fiscal health.

Comparison with Pre-GST Tax Revenues

Research by PRS Legislative Research shows that aggregate GST revenues are still below the total revenues from taxes subsumed under GST before 2017. The combined Centre and states’ tax revenue fell from 6.5% of GDP in 2015-16 to 5.5% of GDP in 2023-24. This gap suggests that GST has not yet fully realised its revenue potential.

Impact on State Finances

States received an average of 2.8% of GDP from subsumed taxes before GST. Post-GST, the average state GST revenue is 2.6% of GDP, indicating a decline. Some states face fiscal challenges due to lower revenues. However, five north-eastern states—Mizoram, Nagaland, Sikkim, Meghalaya, and Manipur—have improved their tax-to-GSDP ratios under GST.

States Facing Revenue Declines

Punjab, Chhattisgarh, Karnataka, Madhya Pradesh, and Odisha have seen the largest drops in GST revenue relative to their economic output. These states may need to explore fiscal reforms or alternative revenue sources to compensate for the shortfall.

Significance and Future Outlook

GST remains important tax reform with potential for growth. The disparities in state revenues underline the need for tailored fiscal policies. Enhancing compliance, broadening the tax base, and improving economic activities can help realise the full benefits of GST.

Questions for UPSC:

1. Discuss the impact of the Goods and Services Tax on the fiscal autonomy of state of Indias. How has GST influenced centre-state financial relations?
2. Critically examine the role of indirect taxes in India’s economic growth. With suitable examples, discuss the advantages and challenges of implementing a unified tax system like GST.
3. Explain the concept of Gross State Domestic Product (GSDP). How does the variation in GST revenue as a percentage of GSDP reflect regional economic disparities in India?
4. Discuss the significance of tax reforms in promoting ease of doing business in India. How do indirect tax reforms like GST affect industrial and service sectors differently?

Answer Hints:

1. Discuss the impact of the Goods and Services Tax on the fiscal autonomy of states of India. How has GST influenced centre-state financial relations?

1. GST subsumed multiple state and central indirect taxes, centralizing tax structure but sharing revenue between Centre and states.
2. States lost autonomy over setting rates for many indirect taxes; GST Council determines uniform rates collectively.
3. Revenue sharing via GST compensation mechanism initially protected states but created dependency on Centre transfers.
4. Some states face revenue shortfalls compared to pre-GST era, affecting their fiscal independence and budget planning.
5. GST Council encourages cooperative federalism but limits unilateral fiscal decisions by states on indirect taxes.
6. Overall, GST improved tax uniformity but constrained states’ fiscal autonomy, reshaping centre-state financial relations toward collaboration.

2. Critically examine the role of indirect taxes in India’s economic growth. With suitable examples, discuss the advantages and challenges of implementing a unified tax system like GST.

1. Indirect taxes are major revenue sources, influencing consumption, production, and investment decisions.
2. GST unified fragmented tax structure, reduced cascading effects, simplified compliance, and boosted formal economy.
3. Example – States like Maharashtra and Tamil Nadu, industrial hubs, showed strong GST revenue reflecting economic growth.
4. Challenges include revenue shortfalls for some states, complexity in rate structures, and compliance burdens for small businesses.
5. GST’s uniformity enhances ease of doing business but transitional issues and regional disparities remain.
6. Overall, GST promotes economic integration but requires continuous reforms to address implementation gaps and state concerns.

3. Explain the concept of Gross State Domestic Product (GSDP). How does the variation in GST revenue as a percentage of GSDP reflect regional economic disparities in India?

1. GSDP measures the total economic output of a state within a specific period, reflecting its economic size and growth.
2. GST revenue as a percentage of GSDP indicates the tax yield relative to the state’s economic activity.
3. Higher GST/GSDP ratios (e.g., in Mizoram, Nagaland) suggest improved tax collection efficiency or economic formalization.
4. Lower ratios (e.g., Punjab, Karnataka) indicate revenue shortfalls or economic structure differences affecting tax base.
5. Variations show uneven economic development, industrialization, consumption patterns, and tax compliance across states.
6. Such disparities necessitate tailored fiscal policies and support mechanisms to balance state revenues and growth.

4. Discuss the significance of tax reforms in promoting ease of doing business in India. How do indirect tax reforms like GST affect industrial and service sectors differently?

1. Tax reforms reduce complexity, lower compliance costs, and create transparent, predictable tax environments attracting investment.
2. GST replaced multiple taxes with a single system, simplifying interstate trade and reducing logistics costs.
3. Industrial sector benefits from input tax credits, reduced cascading taxes, and streamlined supply chains under GST.
4. Service sector gains from unified tax rates and simpler compliance but faces challenges with frequent rate changes and classification issues.
5. GST’s digital filing and invoice matching improve transparency but require technological adaptation from businesses.
6. Overall, GST enhances ease of doing business but sector-specific impacts vary, requiring policy fine-tuning to support all industries.