GST enters 10th year: Inside the process behind every GST rate change

On July 1, the Goods and Services Tax (GST) will enter its tenth year. Over the past nine years, the GST Council has emerged as one of the country's most important tax policymaking bodies, deciding everything from rate cuts on essential goods to exemptions for key sectors.

 

Here's a look at how proposals to change GST rates move through committees, negotiations and constitutional processes before they are officially notified.

 

Who can propose a GST rate change?

 

Unlike many other tax proposals, suggestions to revise GST rates can come from multiple sources. Industry associations, companies, state governments, central ministries, tax authorities and even judicial rulings can trigger a review of an existing GST rate or product classification.

 

Businesses and trade bodies frequently submit representations seeking lower tax rates, exemptions or clarification on classification disputes. State governments can also recommend changes based on local industry concerns or revenue considerations, while central ministries may seek revisions to support specific sectors or policy objectives.

 

These proposals are sent to the Fitment Committee of the GST Council Secretariat.

 

What happens after a proposal is submitted?

 

Once a proposal is received by the GST Council Secretariat, it enters a multi-stage review process. This is how the process works:

 

Fitment Committee’s review:

 

The proposal is first examined by the Fitment Committee—a panel comprising tax officials from the Centre and states. The committee evaluates the proposal's revenue impact, legal implications, classification issues and its effect on taxpayers. Based on its assessment, the committee either accepts, rejects or modifies the recommendation before sending it to the GST Council.

 

GST Council meeting:

 

Ahead of the GST Council meetings, which happen at least once every quarter, the Fitment Committee's recommendations are compiled into agenda papers and sent to the members. During the meeting, the Union Finance Minister, the Minister of State for Finance, and finance ministers of states and Union territories deliberate on the proposal.

 

Based on these deliberations, the Council approves, modifies, defers for further examination, or rejects the proposal.

 

Article 279A of the Constitution provides for decisions to be taken by a three-fourths weighted majority, with the Centre carrying one-third of the voting weight and the states two-thirds. The GST Council generally arrives at its decisions through a consensus-based approach, reflecting the principle of cooperative federalism..

 

Official notification:

 

If the Council recommends a rate change, the decision does not come into effect immediately. After the recommendation, the Union government issues notifications under the Central GST Act, while states issue corresponding notifications under their respective State GST laws. The revised rates become applicable from the date specified in these notifications.

 

Business transition:

 

Once the notifications come into effect, businesses update their billing systems, invoices, and accounting processes to reflect the revised tax rates.

 

*Chart made using GPT.

How long does it take for a GST rate change to come into effect?

 

Once the GST Council approves the rate change and recommends it, the Union and state governments issue the necessary notifications within a few days or weeks, specifying the date from which the revised rates will take effect.

 

 

However, the process of approving a GST rate change can take considerably longer. While some proposals are approved in a single GST Council meeting, others remain under discussion for months or even years. Since GST is a subject involving both the Centre and the states, any rate revision requires a broad consensus among governments with differing fiscal priorities.