GST collection sparkles despite wholesale cuts; Govt foresees marginal shortfall from budget estimates, upbeat about Oct numbers

New Delhi: India’s goods and services tax (GST) revenues remained strong even after sweeping structural rationalization in early September, which reduced rates on 99% of taxed items; This gave the North Block confidence that it would eventually have to deal with only a modest and manageable deficit from its FY26 budget forecasts.

Officials told ET that the continued strength in GST collections shows that the reforms are simultaneously supporting domestic consumption and revenue viability for the government.

“We are broadly in line with budget revenues. Any deviation will be moderate,” a senior official told ET. The GST reforms, effective from September 22, effectively reduced the multi-tiered tax structure to two broad slabs of 5% and 18% and added a special rate of 40% for selected items. The above-mentioned official added that the government has strategically planned the implementation date of GST rationalization with the festive season, thereby helping to boost domestic consumption.

While three-wheeler sales increased by 5.5% in September, two-wheeler sales reached 2.16 million units.

Healthy Business Activity

Passenger vehicle sales in September stood at 372,000 and air conditioner sales doubled on the first day of the GST reforms. There was a 30-35% increase in TV sales.

“The positive outcome is that demand has increased as intended and revenue has still remained strong despite tax rates falling,” an official said. The Center collected Rs 1.89 lakh crore as GST in September, up 9.1% year-on-year. Looking at current sales trends, the collection momentum is likely to continue in October. “Strong GST collections during the festive season clearly show that people are spending and business activities remain healthy,” said Amit Maheshwari, Tax Partner at AKM Global, a tax and advisory firm. He said October collections will also be solid.

However, both the government and tax experts believe that collections may soften once the festive season ends.

“Collections traditionally remain high during the festival season and December figures will reflect the correct collection trend once the festival euphoria subsides,” said the first official cited above.

The official added that the deficit would not be as high as “speculated” by experts and economists and would be revenue neutral, offset by higher non-tax revenues than budgeted.

Officials said after analyzing post-Eid GST collection trends, the exact amount of the deficit can be accurately assessed only after December. Based on this assessment, the government may consider revising budget estimates downwards if necessary.

The new GST registration and verification norms, effective from November 1, including stricter identity verification and physical verification for high-risk cases, are likely to prevent revenue leaks and curb fraudulent invoicing practices, the official added.

Economists say the deficit will not affect the overall fiscal math.“Given higher non-tax revenues than budgeted and savings that generally tend to be found in expenditure as per budget estimates, we believe the government can stick to its fiscal deficit target of 4.4% of GDP,” said Aditi Nayar, chief economist at ICRA.