Uttar Pradesh tops in mopping up through taxes
Fresh state-wise data shows Goods and Services Tax (GST) collections rising across major states even after the GST Council's rate rationalization exercise cut tax slabs and the GST compensation cess to states lapsed.
Uttar Pradesh recorded the sharpest momentum among large states, posting strong month-on-month GST revenue growth through 2026 and climbing to the second-highest monthly GST-collecting state (behind Maharashtra) in April 2026, a marked jump from its earlier mid-table ranking.
Maharashtra remains the largest absolute contributor to GST revenue nationally, with Karnataka, Gujarat, Tamil Nadu and Uttar Pradesh among the other top contributors.
The revenue resilience is being read as evidence that the September 2025 rate rationalization ("GST 2.0") did not erode collections, and that states have absorbed the withdrawal of compensation cess payouts without a revenue shock.
The GST compensation cess, originally meant to run five years from GST's 2017 rollout, was extended in stages to repay back-to-back loans taken during the COVID-19 revenue shortfall, and formally wound down by end of FY26.
GST Council and Article 279A
The GST Council is a constitutional body created by the 101st Constitutional Amendment Act, 2016, which inserted Article 279A into the Constitution. It institutionalizes cooperative fiscal federalism by giving the Union and all States/UTs (with legislatures) a joint say in GST rate-setting and administration.
Key Details
- Chaired by the Union Finance Minister; members include the Union Minister of State for Finance and the Finance/Taxation Minister of each state.
- Voting weightage: Centre has one-third of votes, all states together have two-thirds; decisions require a three-fourths majority of votes cast.
- The Council recommends GST rates, exemptions, and thresholds — it does not itself levy tax.
The rate rationalization that reshaped GST slabs in September 2025 was a GST Council recommendation, illustrating the Council's central role in indirect tax policy that states must then absorb into their revenue planning.
GST Rate Rationalization ("GST 2.0")
At its 56th meeting (September 3, 2025), the GST Council approved collapsing the earlier four-tier rate structure (5%, 12%, 18%, 28%) into a simplified two-slab system: a Merit Rate of 5% and a Standard Rate of 18%, with a special de-merit/"sin goods" rate of 40% for select items. The new rates took effect from September 22, 2025.
Key Details
- Aimed at common-man goods, labour-intensive sectors, farm inputs, and healthcare items, most of which moved to the lower 5% slab.
- GST collections in the September–November 2025 window rose roughly 5% year-on-year despite the rate cuts, per official data.
- Overall FY26 gross GST collection touched approximately ₹22.27 lakh crore nationally.
The news event's central claim — that states' GST kitties grew despite rate cuts — is a direct test of whether rationalization broadened the tax base/compliance enough to offset lower headline rates, a classic "Laffer-curve-style" revenue question UPSC likes to probe.
GST Compensation Cess and the Compensation Mechanism
The GST (Compensation to States) Act, 2017 guaranteed states compensation for five years (July 2017–June 2022) for any revenue shortfall against a 14% assured annual growth rate, funded by a compensation cess on top of the 28% slab (luxury/sin goods like tobacco, aerated drinks, large automobiles).
Key Details
- The Centre extended cess collection beyond June 2022 — not to pay fresh compensation, but to service back-to-back loans raised during COVID-19 to bridge the compensation shortfall.
- The cess was formally wound down by March 31, 2026, after which the Centre introduced an Additional Excise Duty (AED) on select items, distributed to states via the regular Finance Commission devolution formula rather than a dedicated compensation transfer.
[Unverified — exact wind-down date and AED mechanism specifics; confirm against latest CBIC notification]
The article's core finding — states sustaining GST growth without the compensation cess safety net — tests whether the transition to a "self-sustaining" GST regime (5+ years after rollout) is working, a recurring GS-III public finance theme.
- GST rolled out on July 1, 2017, replacing multiple central and state indirect taxes.
- GST Council created by the 101st Amendment Act, 2016 (Article 279A).
- Rate rationalization effective September 22, 2025: new slabs of 5% (merit), 18% (standard), 40% (de-merit/sin goods).
- FY26 gross GST collection: approximately ₹22.27 lakh crore, a marginal 0.8% rise over FY25's ₹22.09 lakh crore; overall GST revenue growth slowed to about 5.6% in FY26 versus 9.4% in FY25.
- Uttar Pradesh climbed to the 2nd-highest monthly GST-collecting state in April 2026 (behind Maharashtra), overtaking Karnataka, Gujarat and Tamil Nadu that month.
- GST compensation cess wound down by end of FY26, five-plus years after its original five-year (2017–2022) mandate.