Jonah Patel
The 101st Constitutional Amendment Act, passed in 2016, was a significant moment in India's fiscal history, introducing the Goods and Services Tax (GST) regime and restructuring the taxation powers between the Union and States. The amendment created a GST Council, consisting of the Union Finance Minister and state representatives, tasked with implementing GST and deciding on GST rates, taxes subsumed under GST, and goods and services covered under GST, among other subjects. This amendment also provided for the centre to compensate states for any revenue loss due to GST implementation for a five-year period.
| Characteristics | Values |
|---|---|
| Name | The Constitution (101st) Amendment Act, 2016 |
| Purpose | To introduce the Goods and Services Tax (GST) regime |
| GST Council | Consists of the Union Finance Minister and representatives from all states |
| Subjects decided by the GST Council | GST rates, taxes to be subsumed under GST, goods and services covered under GST, model laws to be passed by Parliament and state assemblies, apportionment of IGST, special provisions for North-Eastern or Himalayan states |
| GST Levy | Central GST (CGST) levied by the central government and State GST (SGST) levied by states on the supply of goods and services within a state |
| GST Collection | Central government levies and collects GST on inter-state supplies |
| GST Revenue Sharing | Tax proceeds apportioned between the Union and States as per Parliament's law |
| GST Import Classification | Supplies during import deemed as inter-state trade |
| GST Rate Changes | The central government can notify CGST rate changes, subject to a cap of 20%, without requiring the approval of Parliament |
| GST Dispute Resolution | A dispute resolution mechanism is mandated by Article 279A |
| Special Provisions | Separate clauses for petroleum products, alcoholic liquor for human consumption, and entertainment tax by local bodies; Special provisions for Jammu & Kashmir |
| GST and Taxation Powers | Grants concurrent powers to Parliament and State Legislatures to make laws regarding GST; Parliament holds exclusive power over inter-State trade and commerce |
| GST and Taxation Structure | Establishes a unified national market and a uniform taxation framework across India |
| GST Compensation | Requires the centre to compensate states for any revenue loss due to the implementation of GST for a five-year period; Unutilized funds after five years shared equally between the centre and states |
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What You'll Learn
Introduction of the Goods and Services Tax (GST)
The 101st Constitutional Amendment Act, 2016, introduced the Goods and Services Tax (GST) regime in India, marking a significant shift in the country's taxation landscape. This amendment was a watershed moment, as it fundamentally restructured the taxation powers between the Union and the States, creating a unified national market and a standardised taxation system for goods and services across India.
The GST regime established by the 101st Amendment Act has several key features. Firstly, it grants concurrent powers to Parliament and State Legislatures to enact laws pertaining to GST, with a special provision granting Parliament exclusive power over interstate trade and commerce. Secondly, it introduces a GST Council, comprising the Union Finance Minister and state representatives, tasked with making crucial decisions on GST rates, taxes subsumed under GST, goods and services covered, model laws, and apportionment of taxes. This council operates through consensus-based decision-making, fostering cooperation and dialogue between the Centre and states.
The amendment also outlines the GST collection mechanism, where the Central Government levies and collects GST on interstate supplies, with tax proceeds shared between the Union and States according to Parliament's law. Additionally, it addresses revenue sharing, providing for compensating states for any revenue losses due to GST implementation for a five-year period. To achieve this, an additional cess may be levied on certain goods and services.
The Central GST Bill, 2017, is another crucial component of the 101st Amendment Act. This bill empowers the central government to notify CGST rates, allowing for a multiple tax rate structure. However, this has sparked debates about whether a multiple rate structure aligns with the idea of a single GST rate for all goods and services. Nonetheless, the bill enables the government to adjust rates up to a cap of 20% without seeking prior parliamentary approval.
In conclusion, the introduction of GST through the 101st Constitutional Amendment Act, 2016, has had a profound impact on India's taxation system. It has fostered economic integration, reduced taxation barriers, improved tax collections, and transformed the financial relationship between the Central and state governments, reflecting the accommodative spirit of federalism.
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GST Council formation
The 101st Constitutional Amendment Act, 2016, introduced the Goods and Services Tax (GST) regime, marking a significant shift in India's taxation history. This amendment fundamentally restructured the taxation powers between the Union and States, creating a unified national market and a single taxation system for goods and services across India.
The GST Council, established under Article 279A, is a key feature of this amendment. The Council consists of the Union Finance Minister, who acts as the Chairperson, and the Ministers of Finance or Taxation from each state, reflecting the spirit of cooperative federalism. This federal institution fosters cooperation and effectively addresses fiscal federal disputes, providing a platform for dialogue, negotiation, and mutual agreement.
The GST Council is responsible for deciding on crucial subjects related to GST implementation. These subjects include GST rates, taxes subsumed under GST, goods and services covered under GST, model laws for Parliament and state assemblies, apportionment of IGST, and special provisions for specific regions like the North-Eastern or Himalayan states.
The formation of the GST Council under the 101st Amendment Act ensures that the interests of both the Central and State governments are considered in the GST decision-making process. It promotes consensus-based decision-making, requiring the approval of at least three-fourths of the Council members for any changes related to tax rates, exemptions, thresholds, and administrative issues.
The Central GST Bill, 2017, is another important component of the GST framework. It grants the central government the authority to notify CGST rates, allowing for a multiple tax rate structure. However, the bill also sets a cap of 20% on these rates, providing a balance between flexibility and parliamentary scrutiny.
The 101st Constitutional Amendment Act, passed unanimously by the states, showcases a collaborative effort to establish a uniform taxation system in India, fostering improved tax collections and economic integration while strengthening intergovernmental relations.
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CGST rates
The 101st Constitutional Amendment Act, 2016, was a turning point in India's taxation history, introducing the Goods and Services Tax (GST) regime. This amendment restructured the taxation powers between the Union and States, creating a unified taxation system for goods and services across India. The Central GST Bill, 2017, allows the central government to notify CGST rates, subject to a cap. This means that the government can change rates without parliamentary approval, but only up to a maximum of 20%.
The CGST rate is the tax percentage applied to the sale of goods or services. It is one of the components of the GST, along with the State GST (SGST) and Integrated GST (IGST). The CGST rate is usually half of the IGST rate, and the SGST rate is equal to the CGST rate. For example, if the IGST rate is 18%, the CGST rate would be 9%, and the SGST rate would also be 9%.
The GST Council, comprising the Union Finance Minister and state representatives, decides on GST rates. The GST Council's decisions can have a significant impact on industries and consumer behaviour. The GST rates in India for 2025 range from 0% to 28%lesser-used rates like 3% and 0.25%. There are also special rates for certain items, such as cigarettes, tobacco, aerated water, petrol, and motor vehicles, which can vary from 1% to 204%.
Some examples of CGST rate notifications from 2025 include:
- Fortified Rice Kernel (FRK) bearing HSN 1904 now attracts a 5% GST rate.
- Any inputs used in food preparations intended for free distribution to the economically weaker sections will attract a conditional 5% GST rate.
- The GST rate on the sale of old and used electronically operated vehicles (EVs) is now 18%, up from 12%.
It is worth noting that sales tax rates can vary by state and locality in some countries, such as the United States. Businesses are responsible for collecting sales tax from customers and remitting it to the state.
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GST dispute resolution
The 101st Constitutional Amendment Act, 2016, introduced the Goods and Services Tax (GST) regime in India, marking a significant shift in the country's taxation landscape. This amendment brought about a fundamental restructuring of taxation powers between the Union and States, creating a unified national market with a standardised taxation system for goods and services.
One of the critical aspects of the 101st Amendment is the establishment of a GST Council, comprising the Union Finance Minister and representatives from all states. This council is tasked with making crucial decisions regarding GST rates, the taxes subsumed under GST, the goods and services covered, model laws, and the apportionment of Integrated GST (IGST). It also addresses special provisions for specific regions, such as the North-Eastern and Himalayan states.
The amendment grants concurrent powers to Parliament and State Legislatures to formulate laws pertaining to GST, with an exception for inter-State trade and commerce, which falls under Parliament's exclusive jurisdiction. The amendment also outlines a separate clause for petroleum products, including crude oil, diesel, petrol, natural gas, and aviation fuel, allowing both the Centre and states to levy taxes on these products.
To address revenue concerns, the amendment includes a provision for compensating states for any loss of revenue resulting from the implementation of GST. This compensation is facilitated through an additional cess on specific goods and services under GST. At the end of the five-year compensation period, any unutilised funds from the cess collection will be shared equally between the Centre and states, with the states' share apportioned based on their State GST (SGST) collections in the final year of the transition.
The Central GST Bill, 2017, empowers the central government to notify Central GST (CGST) rates, subject to a cap. This flexibility allows the government to adjust rates up to 20% without seeking prior approval from Parliament. However, it has sparked debates about the appropriateness of implementing rate changes without parliamentary scrutiny and consent.
The 101st Constitutional Amendment Act, 2016, not only revolutionised India's taxation framework but also established a robust dispute resolution mechanism. This mechanism, guided by national market development, aims to balance central and state powers while fostering coordination and harmonious decision-making.
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Restructuring of India's taxation framework
The 101st Constitutional Amendment Act, 2016, introduced the Goods and Services Tax (GST) regime, marking a significant shift in India's taxation landscape. This amendment profoundly restructured the taxation powers between the central government and the states, fostering a unified national market with a streamlined taxation system for goods and services across India.
Prior to the 101st Amendment, taxation in India was characterised by a complex web of multiple taxes levied by both the central government and state governments. This resulted in a fragmented market with varying tax rates and structures across different states, creating barriers to the free movement of goods and services. The introduction of GST aimed to address these challenges by creating a uniform taxation framework.
The GST Council, established under Article 279A, is a pivotal aspect of this amendment. It comprises representatives from both the central and state governments, including the Union Finance Minister and state finance or taxation ministers. This council is tasked with making crucial decisions regarding GST rates, the goods and services covered under GST, and the laws to be passed by Parliament and state assemblies. The council operates through consensus-based decision-making, with most decisions requiring the approval of at least three-fourths of its members.
The 101st Amendment Act grants concurrent powers to Parliament and State Legislatures to enact laws pertaining to GST. However, it reserves exclusive power over interstate trade and commerce for Parliament. Additionally, it mandates compensation to states for any revenue losses incurred during the initial five-year implementation period of GST. This compensation is funded through an additional cess on certain goods and services, and any unutilised funds are shared equally between the centre and the states.
The Central GST Bill, 2017, is another critical component of the restructuring. It empowers the central government to notify CGST rates, allowing for a multiple tax rate structure. This provision enables the government to adjust rates up to a cap of 20% without seeking prior parliamentary approval. While this flexibility in rate adjustment may be advantageous, it has sparked debates about the appropriateness of bypassing parliamentary scrutiny.
Overall, the 101st Constitutional Amendment Act, 2016, represents a significant milestone in India's fiscal federal structure. By introducing GST and establishing the GST Council, the amendment fosters cooperation, improves tax collections, and promotes economic integration. The unified taxation system enhances compliance, benefiting both central and state governments. This restructuring of India's taxation framework has been a pivotal step towards achieving a seamless national market and boosting the country's economic prospects.
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Frequently asked questions
The 101st Amendment of the Indian Constitution, also known as the Constitution (101st) Amendment Act, 2016, introduced the Goods and Services Tax (GST) regime, establishing a uniform taxation framework across India.
The 101st Amendment Act is significant because it fundamentally restructured the taxation powers between the Union and States, creating a unified national market through GST. It also altered the financial relationship between the central government and the states, leading to a more cooperative and collaborative framework.
The GST Council, established under Article 279A, consists of the Union Finance Minister and representatives from all states. It decides on subjects such as GST rates, taxes to be subsumed under GST, goods and services to be covered under GST, and the apportionment of IGST.
