Union Budget 2026: The GST factor behind budget numbers

As the Union Budget 2026 for the financial year 2026-27 is scheduled to be presented in Parliament on Sunday, February 1, 2026, at 11 am, one of the major fiscal elements influencing policy decisions is the Goods and Services Tax (GST).

First rolled out in July 2017, GST replaced a host of indirect levies and has become central to how the government forecasts revenue, plans expenditure and manages fiscal targets.

When GST was introduced, it marked a significant overhaul of India’s indirect tax system by subsuming multiple taxes such as value-added tax, excise duty and service taxes into a unified framework. This simplification was aimed at reducing the cascading of taxes where tax was levied on top of tax and making compliance easier for businesses across states.

Because GST is now levied at each stage of production and distribution but only on the value added at that stage, it has helped standardise tax structures and reduce administrative complexity.

For the Union Budget, GST plays a foundational role in revenue planning. The tax contributes significantly to the government’s receipts, which are then used to fund everything from infrastructure projects to social programmes.

Because GST collections reflect consumption patterns and business activity, they also serve as an economic indicator that policymakers watch closely when setting fiscal projections.

Strong GST collections can underpin higher spending plans or help keep fiscal deficit targets in check, while weaker-than-expected collections can force adjustments in spending or borrowing assumptions.

Another important impact of GST is that it has helped unify the Indian market by reducing tax barriers between states. This has facilitated smoother movement of goods, which not only strengthens supply chains but also improves the predictability of revenue flows a key input when estimating budget receipts.

The digital compliance mechanisms introduced alongside GST, such as online registration and e-way bills, have formalised much of the economy and broadened the tax base, making revenue collection more transparent and efficient.

Because GST is jointly administered by the centre and states through the GST Council, the revenue it generates and how it is shared also influences fiscal federal relations.

Decisions regarding compensation to states for revenue shortfalls, rate changes and future reforms are often reflected indirectly in budget planning and negotiations, affecting both central and state spending priorities.