**Executive Summary**
This document is a response to Unstarred Question No. 1524 in Lok Sabha, addressing the fiscal impact of GST restructuring, specifically related to concerns raised by the Finance Minister of Tamil Nadu. The response, dated February 9th, 2026, outlines the steps taken by the Government regarding GST rate rationalization based on the recommendations of the GoM on rate rationalization, and addresses concerns about revenue losses and fiscal stability of states. No compensation mechanism is currently under consideration.
**Key Points / Main Content**
* **GST Rate Rationalization:**
* A Group of Ministers (GoM) on rate rationalization, led by the state of Bihar and including 5 other states, submitted its recommendations to the GST Council.
* GST Council in its 56th meeting on 03.09.2025, recommended rationalization of GST rates on various goods and services. Focus includes the common man, labor-intensive industries, farmers, agriculture, health, and key drivers of the economy.
* Rationalization aims for a simplified tax structure with a Standard Rate of 18%, a Merit Rate of 5%, and a special de-merit rate of 40% for select goods and services.
* As of the date of the response, no formal study has been conducted on the impact of GST rate reduction on various sectors of the economy.
* **Revenue Loss Compensation:**
* No proposal for a compensation mechanism to offset revenue losses arising from GST changes is currently under consideration by the government.
* **Fiscal Stability of States:**
* All states have enacted their Fiscal Responsibility and Budget Management (FRBM) Act.
* Compliance with State FRBM Acts is monitored by respective State Legislatures.
* The central government considers fiscal limits as per Finance Commission recommendations when approving borrowings by states under Article 293(3) of the Constitution of India.
**Impact Analysis**
**State Governments**
* **Impact**
* States are impacted by the GST rate rationalization and any potential revenue implications. They also need to comply with their respective FRBM Acts.
* **Action Required**
* States need to monitor the impact of GST rate changes on their revenues and ensure compliance with their State FRBM Acts.
**Central Government (Ministry of Finance)**
* **Impact**
* The central government is responsible for considering the fiscal limits of states and monitoring compliance with the FRBM Act.
* **Action Required**
* The central government should consider the fiscal limits as per Finance Commission recommendations when approving borrowings by states.
**Taxpayers (Businesses and Individuals)**
* **Impact**
* Taxpayers are impacted by the GST rate changes on the goods and services that they purchase.
* **Action Required**
* Taxpayers need to understand the impact of the changes to their tax liabilities.
Key Entities Referenced
GST Council: Body that recommends rationalization of GST rates.
GoM on rate rationalization: Group of Ministers constituted to make recommendations on rationalizing GST rates.
Ministry of Finance: Primary government body responding to questions on GST.
Fiscal Responsibility and Budget Management (FRBM) Act: State laws relating to fiscal responsibility and budget management.
Tamil Nadu: State whose Finance Minister's statement regarding GST's financial burden is under consideration.
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
LOK SABHA
UNSTARRED QUESTION NO. 1524
ANSWERED ON MONDAY, THE 9th FEBRUARY, 2026/ 20 MAGHA, 1947 (SAKA)
Fiscal Impact of GST Restructuring
1524 Shri K E Prakash:
Will the Minister of FINANCE be pleased to state:
(a) whether the Government has taken note of the statement made by the Finance Minister of
Tamil Nadu wherein he stated that changes in the GST regime have imposed an additional
financial burden of Rs.10,000 crore on the State Government, if so, the details thereof;
(b) whether the Government has assessed the fiscal impact of recent GST restructuring
measures, if so, the details thereof, State-wise;
(c) whether any pilot study, phased implementation or impact assessment exercise was
conducted prior to the introduction of such GST changes and, if so, the details thereof and the
findings thereof;
(d) whether the Government proposes any compensation mechanism to offset revenue losses
arising from such GST changes and if so, the details thereof; and
(e) the steps proposed to be taken by the Government to address the concerns raised and to
ensure the fiscal stability of States?
ANSWER
THE MINISTER OF STATE IN MINISTRY OF FINANCE
(SHRI PANKAJ CHAUDHARY)
(a), (b) & (c): GoM on rate rationalization was constituted under the chairmanship of state of
Bihar along with 5 other member states (Uttar Pradesh, Rajasthan, West Bengal, Karnataka and
Kerala). GoM submitted its recommendations to GST Council. GST Council in its 56th meeting
held on 03.09.2025, recommended rationalization of the GST rates on many goods and services
with a focus on common-man, labour-intensive industries, farmers and agriculture, health and
key drivers of the economy. Rationalization of the current 4-tiered tax rate structure into a
citizen-friendly ‘Simple Tax’ - a 2-rate structure with a Standard Rate of 18% and a Merit Rate of
5%; a special de-merit rate of 40% for a select few goods and services was recommended. At
the moment, no formal study has been conducted on the impact of the GST rate reduction on
the different sectors of the economy in the country.(d): No such proposal is under consideration of the government.
(e): All states have enacted their Fiscal Responsibility and Budget Management (FRBM) Act.
Compliance to the State FRBM Act is monitored by the respective State Legislatures. Central
government usually considers the fiscal limits as per the accepted recommendations of the
Finance Commission while exercising powers to approve borrowings by States under Article
293(3) of the Constitution of India.
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