GST rate rationalisation to profit Indian states in FY26: SBI Research

The State Bank of India’s (SBI) research unit recently estimated that in fiscal 2025-26 (FY26), states will remain net gainers from goods and services tax (GST) collections even under the proposed rate rationalisation due to the unique revenue-sharing architecture of the tax.

First, GST is shared equally between the central government and the states, with each receiving half of the collections. Second, under the mechanism of tax devolution, 41 per cent of the central government’s share flows back to the states, SBI Research said in a report on GST.

The proposed goods and services tax (GST) rate rationalisation is likely to result in stronger revenue collections validated by historical trends due to the unique revenue-sharing architecture of the tax, according to SBI Research.
FY26 projections indicate that states are expected to receive at least ₹10 trillion in state GST plus ₹4.1 trillion through devolution, thereby making them net gainers.

Taken together, this means that out of every ₹100 of GST collected, states ultimately accrue nearly ₹70.5.

SBI Research’s FY26 projections indicate that states are expected to receive at least ₹10 trillion in state GST plus ₹4.1 trillion through devolution, thereby making them net gainers.

The gains accrue even when the researchers did not take the additional consumption boost due to rate rationalisation.

“Evidence from earlier rounds of GST rate changes, such as those in July 2018 and October 2019, suggests that rationalization does not necessarily weaken revenue collections. Instead, the evidence points to a temporary adjustment phase followed by stronger inflows,” the SBI Research report noted.

“While an immediate reduction in rates can cause a short-term dip of around 3-4 per cent month on month (roughly ₹5,000 crore, or an annualized ₹60,000 crore), revenues typically rebound with sustained growth of 5-6 per cent per month,” it added.

Fibre2Fashion News Desk (DS)