Governmental Body Focused on Tax Policies and Reforms
In the heart of India's federal structure, the Goods and Services Tax (GST) Council plays a pivotal role in promoting fiscal federalism. Established under the 101st Constitutional Amendment Act, 2016, the Council serves as a collaborative platform where the Centre and States jointly decide on GST rates, exemptions, and reforms.
The Council, composed of the Union Finance Minister, the Union Minister of State in charge of Revenue or Finance, the Minister in charge of Finance or Taxation, and a nominated representative from each state government, has been instrumental in fostering consensus-based decision-making, balancing state and central fiscal needs, ensuring uniformity in taxation, and providing equal power to the Centre and States.
Recent developments highlight this role evolving amid political and economic challenges. The 56th GST Council meeting scheduled for early September 2025 is seen as a critical juncture, with expected landmark reforms including GST rate rationalization, relief on essential goods, and compliance simplification. These reforms aim to reduce disputes, ease the compliance burden, and protect State revenues while supporting economic growth.
However, the Council has faced criticisms, such as allegations of biasness, imposition of decisions, vague provisions in law about its role, functions, and powers, and criticisms by states that decisions taken by bureaucracy are imposed on them. The Supreme Court's ruling in the Mohit Minerals case (2022) reinforces the importance of hearing states' concerns, promoting a more cooperative federal structure.
The ruling clarified that the GST Council’s recommendations are not binding on the Centre or States, underscoring the voluntary and consensus-driven nature of the Council. While this preserves State autonomy, it can also cause tensions and complicate uniform GST implementation.
The end of the five-year revenue compensation period in June 2022 created additional strains, with some States demanding extensions or revised formulas to offset revenue shortfalls. These issues continue to challenge the Council’s consensus-building role.
The Centre's current agenda envisages next-generation GST reforms to further unify and simplify the GST structure, reduce taxes on essentials, and enhance digital compliance mechanisms, all within a framework of cooperative federalism.
In summary, the GST Council remains the key institutional mechanism promoting fiscal federalism in India. Its evolving role involves managing political negotiations, respecting judicial clarifications about its authority, and addressing revenue concerns amid economic pressures. The September 2025 Council meeting is poised to shape this balance through reforms aimed at strengthening fiscal cooperation while protecting States’ autonomy and revenue streams.
[1] India Today
[2] The Hindu
[3] Livemint
[4] The Indian Express
[5] Business Standard
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