What is GST Council in India?

Curious about who determines the GST rates or how taxation policies grow in India? Central to these crucial decisions is the GST Council, which is responsible for shaping the country's tax landscape. This council assists the Government of India in making updates and modifications to the Goods and Services Tax (GST) system by regulating it and refining it. In every meeting, it scrutinises tax structures, resolves industry woes, and tweaks GST policies to maintain a fair and effective taxation regime. This article examines the GST Council's structure and functions and what its impact is on businesses and consumers.

GST Council Meaning

The GST Council is an important body that simplifies India's goods and services tax structure. It replaces the cumbersome tax system that we used to have and provides new ways to make the tax process easier for taxpayers. Moreover, it manages the whole taxation process in a way to facilitate the concerned authorities and control any fraudulent activity. 

Benefits of GST Council

GST Council shapes the taxation in India and proves to be beneficial for businesses, consumers, and the economy in general.

Reduced Tax Burden

One of the major benefits of GST council’s decisions is the overall decrease in the tax burden across the sectors. One example is the textile industry, which has seen a tax rate rationalisation making its products cheaper and increasing demand. It had also reined in revenue stability with a lower GST rates on essentials such as food and medicines, which brought consumers relief.

Simplified Compliance

The business world was faced with indirect taxes at the state and central levels. Foremost, the GST Council has been active and has tried to simplify compliance, through simplifying return systems, e-invoicing, and so on and automating input-tax-credit systems, through both systems. As a result, the administration has been able to free up valuable time for businesses and allow them to concentrate on growing rather than wading through complicated tax regulations.

Enhanced Revenue Collection

This step-by-step action by the GST Council to fight tax evasion has had a major impact on government revenue collections. The council introduced anti-evasion mechanisms like e-way bills and real-time tracking of transactions that helped enhance tax collection. It is a new source of revenue that helps fund infrastructure development, social welfare programs, and economic development initiatives.

GST Council Structure

The members of the GST Council include the following: Union Finance Minister as the Chairman, Union Minister of State (who is in charge of Revenue or Finance), and Nominated Ministers from every State Government. In addition to the above, there is an Ex-officio Secretary and a permanent invitee (representative) from the Central Board of Excise and Customs in the Council.

Recent GST Council Decisions (2024-2025)

GST Exemption for Payment Aggregators: In the 55th GST Council meeting which was held on December 21, 2024, it was decided to exempt payment aggregators handling payments falling below ₹2,000 from GST. This exemption is applicable to only payment aggregators and does not apply to payment gateways and fintech services, which do not do fund settlements.

Impact

Payers can reduce transaction cost especially for low-value payments, which has a lot of benefits for small businesses and consumers as well. For payment aggregators, it facilitates compliance, which should lead to greater uptake of digital payment solutions by various companies and, therefore, improved financial inclusion and transaction efficiency.

No GST on Penal Charges for Loan Non-Compliance: The council has also ruled that penal charges levied by banks or non-banking financial companies (NBFC) for non-compliance with terms settled on the loan are exempt from GST. This move is expected to ease the financial pressure on borrowers, who could incur extra expenses because of penalties.

Impact

The decision lowers the cost of borrowing for consumer and businesses by exempting these charges from GST. It facilitates loans at a lower cost and better compliance to the loan contracts, leading to a healthier financial climate.

Powers of GST Council

The GST Council has substantial powers over the formulation and regulation of India's GST framework. Its reach goes into several important areas:

• Tax Rates and Exemptions: The Council may recommend the dates at which GST would be levied on different goods and services, along with the exemptions where necessary.
• Threshold Limits: It helps in deciding the turnover limit where the business has to get registered under GST, therefore leaving no ambiguity.
• GST Laws and Principles: The Council recommends and amends GST laws as applicable to the principles of tax applications, levy mechanisms, and compliance.

These powers granted to the Council determine the path of India's GST regime, with a keen eye on the needs of businesses, consumers, and the overall economy.

How the GST Council Works

The GST Council has the power to recommend tax rates, exemptions, thresholds of turnover, and laws related to GST. It meets from time to time and deliberates and decides on important issues related to the implementation of GST and its regulation. The GST Council India provides uniformity in the audit rates of the country while addressing the specific needs of the states.

• Representing both the central and state governments, the GST Council Members are of importance when it comes to shaping tax policies. GST explains the GST council functions, which are to streamline the goods and services tax (GST) regime.
• Its most important function is to make recommendations on all matters related to GST taxation. This includes recommendations on the inclusion or exclusion of goods and services under the GST ambit, GST Council decisions on tax rates, and recommending exemptions or cesses.
• GST threshold limits are fixed by the Council (which is a body constituted under GST Law), which determines at what turnover levels businesses would be required to register themselves under GST law. These limits depend on a variety of factors, including the business type and location. If we talk about implementation of GST for management level professionals, the changes in GST policies impact businesses all over the nation.
• The GST Council would ensure a clear and consistent system of taxation. It lays down rules for taxes on the supply of goods or services, rules for the apportionment of integrated GST (IGST), and rules for determining the place of supply.
• The various states in the country have their own needs, and some states, such as the northeastern states, Himachal Pradesh, Jammu and Kashmir, and Uttarakhand, also have special provisions. In addition to tax collection, it is also responsible for compliance mechanisms, anti-profiteering measures, and tax evasion and fraud prevention.

Background of the Goods and Services Tax Council

The introduction of GST in India was initiated by the onset of the 101st Amendment Act of 2016. This new tax regime meant full-fledged cooperation and coordination between the central and state governments for its smooth administration.

To facilitate this consultation process of the GST, the government introduced Article 279-A in the Constitution This new article gave the President the power to create a GST Council. In 2016, the President used this power to form the Council, which is based in New Delhi. The Union Revenue Secretary serves as the ex-officio Secretary to the Council.

Mission of the GST Council

To create a user-friendly GST structure through extensive consultation and ensure that the structure is driven by information technology.

Composition of the Goods and Services Tax Council

The GST Council is a joint platform for both the Central as well as the State Governments, and it includes the following members:

• The Union Finance Minister, who is the Council’s Chairperson
• The Union Minister of State in charge of Revenue or Finance
• The Minister handling finance, taxation, or any other nominated Minister from each state government
• The members of the state are expected to select a Vice-chairperson and decide on his/her term.
• As per the Union Cabinet’s decision, the Chairperson of the Central Board of Excise and Customs (CBEC) is appointed as a permanent invitee for all the proceedings that take place within the Council.

Functions of the Goods and Services Tax Council

The primary function of the GST Council is to make council recommendations to both central and state governments on various aspects of GST. Its key responsibilities include:

• Consolidating taxes, cesses, and surcharges levied by different authorities to streamline tax administration.
• Deciding which goods and services should be subjected to or exempted from GST to support economic development.
• Formulating model GST laws, principles of levy, and apportionment of GST on inter-state transactions.
• Establishing threshold turnover limits to simplify business compliance for small enterprises.
• Setting GST rates, including floor rates with bands, to ensure a balanced approach to government revenue.
• Proposing special tax rates during natural calamities or disasters.
• Addressing state-specific provisions to cater to regional requirements.
• Recommending the GST implementation date for specific petroleum products.
• Suggesting compensation to states for revenue loss due to GST implementation, ensuring financial stability.

Based on these council recommendations, Parliament determines the compensation mechanism for the states.

Features of the GST Council

• The GST Council was placed in New Delhi, thus setting it up as a unified command centre for the GST implementation.
• The revenue secretary was designated as the ex-officio secretary of the GST Council.
• Permanent observer status was granted to the Central Board of Indirect Taxes and Customs (CBIC) Chairperson to incorporate the views of the Central Government on advisement.
• Four senior posts at the level of Joint Secretaries were established for the GST Council Secretariat to provide subject matter expertise in specific areas of GST.
• The appointment of an Additional Secretary added further strength to the leadership and working of the Council.
• Furthermore, officers from the Central and State Governments were delegated to the GST Council Secretariat to facilitate collaboration and knowledge sharing.

What is the Significance of the GST Council?

The GST council has revolutionised the way of taxation in India, making it more efficient and easy to do business. Its judgements have brought to the Indian economy much-needed stability and ensured a more structured approach to revenue collection. The Council has simplified complex indirect tax regime which has facilitated ease of doing business.

This tax reform has enabled predictability that allows enterprises to plan their finances establishing confidence. This transparency, in addition to extending the overall validity of the tax structure, has aligned India's taxation with the global standards and strengthened the economic competitiveness of the nation.

Challenges Faced by the GST Council

The Goods and Services Tax (GST) Council, the body mandated to oversee and optimise India’s GST structure, faces certain challenges in its functioning. As a body that needs to reconcile taxation across a large and heterogeneous nation, it frequently has to leap over political, economic and administrative hurdles. These challenges majorly affect decision-making prospects, revenue collection, and the overall efficiency of GST implementation. Here are some of the major challenges before the GST Council:

Balancing the Interests of the Centre and the States

Balancing the interests of central and state governments is one of the main challenges for the GST Council. GST replaced many existing state and central taxes, and so required a federal collective approach. But, states have widely differing perspectives on tax rates, exemptions and revenue-sharing mechanisms.

The concept of federalism involves distributing legislative power between a central authority and its constituent regions (states, provinces, etc.). While the former strives for economic stability and balance across the nation, the latter desires fiscal autonomy and higher revenue shares to oversee state expenditures. This divergence results in long discussions and delays in decision-making. Moreover, political divergence between ruling parties at the centre and states can create further challenges for building consensus in the Council.

Creating a Standard Level of Consistency Across States

Another key challenge is to ensure uniformity in GST implementation across all states. The goal of electronic filing was to create one tax system, but differences remain between states based on different infrastructure levels, administrative efficiency, and digital readiness. Tax administration systems are advanced in some states, with high compliance rates, while others have technical issues and enforcement gaps.

Such differences can result in non-uniformity of GST law applications, inconsistencies in the way taxes are interpreted, and inefficiencies in tax collection. In addition, local businesses and traders are also concerned about compliance burdens, making uniform implementation difficult.

Addressing Revenue Shortfalls

Since GST implementation several states have noticed decreased financial revenue. Before GST implementation states managed their own taxation systems while they currently receive their revenue from the unified central distribution center. States received the GST compensation mechanism to guaranteed they will experience no financial losses. The combination of delayed compensation payments and economic downturns affecting the COVID-19 pandemic created more stress for revenue streams.

Multiple states continue to take compensation payments and revenue-generating measures while doing so at odds with central federal-state relationships. Taxpayer burdens remain a priority for the Council because it regularly develops approaches to fix economic gaps.

Adapting to Economic Changes

The Indian economy features a thriving environment which produces new economic areas in a rapid manner particularly within e-commerce and fintech domains. The GST Council needs to sustain continuous development of its tax policies. The process of tax determination faces technical difficulties when applied to digital products along with cross-border e-commerce activities and services provided by independent talent in the gig economy.

Due to economic disturbances and Indian economy intricacies as well as inflationary forces actual tax rates and compliance procedures remain difficult to adjust properly.

Voting Mechanism in the GST Council

The GST Council adopts a voting procedure to maintain balance between central government powers and those of state governments.

The GST Council implements a specific voting system that lets both the central and state governments actively participate during decision-making procedures. Voting distribution among the members happens according to this structure:

• Central Government: Holds one-third of the total voting power.
• The two-thirds of total voting power rests with State Governments while each member state possesses equal voting rights in this segment.

The GST Council requires a vote majority of at least three-fourths of the weighted votes from present members to approve any decision. Through this system one individual cannot force their decisions upon others because it promotes discussion-based tax policy creation.

Conclusion

The GST Council maintains economic stability and compliance through continuous assessment of tax policies to provide advantages to businesses and consumers. The continuing economic growth of India makes the council’s work to refine GST policies even more essential for the nation. Businesses must follow all the latest GST council decisions to maintain their leadership position and adjust to changes within the developing tax system. Use the knowledge you have to comply with the structured tax system while accessing all its advantages.

FAQs

Ans. The primary functions of the GST Council include making recommendations on tax rates, turnover thresholds, and GST exemptions while formulating policies for the smooth implementation of the Goods and Services Tax. It ensures that all states follow a uniform taxation framework while addressing specific regional requirements.

Ans. The GST Council meets periodically to assess and refine GST Law in accordance with the economy's evolving needs. While the Constitution does not mandate a fixed schedule, the Council typically meets multiple times a year to ensure effective decision-making and oversight.

Ans. The Union Finance Minister chairs the GST Council meetings, with participation from state Finance Ministers and senior officials from relevant authorities, including the CBIC. This ensures a collaborative approach between the central and state governments in taxation matters.

Ans. The quorum for GST Council meetings requires the presence of one-third of its members, ensuring that key stakeholders in State GST and Central GST have adequate representation. This guarantees that tax-related decisions are taken with a balanced perspective, considering both regional and national interests.

Ans. By regulating Integrated GST and promoting Tax Compliance, the GST Council strengthens India's taxation framework. Its policies encourage transparency, ease of doing business, and a streamlined tax structure, ultimately fostering economic growth and attracting investment.