Beginning of Indirect Tax Reforms in 1986
The reform of India’s indirect tax system began in 1986. V. P. Singh, who was the Finance Minister in the government of Prime Minister Rajiv Gandhi, introduced the Modified Value Added Tax (MODVAT).
The introduction of MODVAT was an important step towards reforming India’s indirect tax structure.
Later, Prime Minister P. V. Narasimha Rao and Finance Minister Manmohan Singh initiated preliminary discussions on introducing Value Added Tax (VAT) at the State level.
Proposal for a Common GST in 1999
A single and common Goods and Services Tax (GST) was proposed and endorsed in 1999.
The proposal was discussed during a meeting between Prime Minister Atal Bihari Vajpayee and his economic advisory panel.
The panel included three former governors of the Reserve Bank of India (RBI): I. G. Patel, Bimal Jalan, and C. Rangarajan.
Prime Minister Atal Bihari Vajpayee constituted a committee headed by Asim Dasgupta, who was associated with the Finance Ministry of West Bengal. The committee was given the responsibility of designing a GST model for India.
Exam Point: A single common GST was first proposed and endorsed in 1999 during the Atal Bihari Vajpayee government.
Role of the Asim Dasgupta Committee
The Asim Dasgupta Committee played an important role in developing a uniform taxation system for India.
The committee was also responsible for developing the back-end technology and logistics infrastructure required for the GST system.
This technological and logistical framework later came to be known as the Goods and Services Tax Network (GSTN) in 2015.
The committee worked towards introducing a uniform indirect tax regime throughout the country.
Vijay Kelkar Task Force and GST Recommendation
In 2002, the Vajpayee government constituted a Task Force under Vijay Kelkar to recommend tax reforms.
In 2005, the Kelkar Committee recommended the introduction of GST, as suggested by the Twelfth Finance Commission.
Thus, the Kelkar Committee further strengthened the proposal for implementing a common GST system in India.
Exam Point: The Vijay Kelkar Task Force was constituted in 2002, and the Kelkar Committee recommended GST in 2005.
GST Implementation Target of 1 April 2010
After the 2004 Indian General Election, the BJP-led NDA government was replaced by the Congress-led UPA government.
In February 2006, Finance Minister P. Chidambaram continued the efforts to implement GST.
He proposed 1 April 2010 as the target date for the rollout of GST.
However, GST could not be implemented by the proposed date.
In 2011, after the Trinamool Congress defeated the CPI(M) government in West Bengal, Asim Dasgupta resigned as the head of the GST committee. According to Dasgupta, approximately 80% of the GST-related work had been completed at that time.
Introduction of the 115th Constitution Amendment Bill
The UPA government introduced the 115th Constitution Amendment Bill on 22 March 2011 in the Lok Sabha to enable the implementation of GST.
The Bill faced opposition from the Bharatiya Janata Party (BJP) and other political parties.
The Bill was referred to a Standing Committee headed by Yashwant Sinha, a former Finance Minister.
The Standing Committee submitted its report in August 2013.
However, objections to the GST proposal resulted in the indefinite postponement of the Bill in October 2013.
GST Bill After the 2014 General Election
In the 2014 Indian General Election, the BJP-led NDA government came to power.
With the dissolution of the 15th Lok Sabha, the earlier GST Bill, which had been approved by the Standing Committee for reintroduction, lapsed.
Seven months after the formation of the new government, Finance Minister Arun Jaitley introduced a new GST Bill in the Lok Sabha.
In February 2015, Arun Jaitley set a new target date of 1 April 2017 for GST implementation.
Passage of the Constitution Amendment Bill
In May 2016, the Lok Sabha passed the Constitution Amendment Bill, clearing an important path for the implementation of GST.
However, opposition parties led by the Congress sought further review of the Bill by a Select Committee of the Rajya Sabha because of disagreements relating to several taxation provisions.
In August 2016, the Constitution Amendment Bill was passed and became the Constitution (One Hundred and First Amendment) Act, 2016.
Within the next 15 to 20 days, 18 States ratified the Bill.
President Pranab Mukherjee subsequently gave his assent to the Constitutional Amendment.
Exam Point: GST received constitutional support through the Constitution (One Hundred and First Amendment) Act, 2016.
Formation of the 21-Member Select Committee
A 21-member Select Committee was constituted to examine the proposed GST laws.
After approval by the GST Council, four important GST Bills were considered:
| GST Bill | Purpose/Name |
|---|---|
| CGST Bill, 2017 | Central Goods and Services Tax Bill |
| IGST Bill, 2017 | Integrated Goods and Services Tax Bill |
| UTGST Bill, 2017 | Union Territory Goods and Services Tax Bill |
| GST Compensation Bill, 2017 | Goods and Services Tax (Compensation to the States) Bill |
These Bills created the legal framework required for the implementation of GST.
Passage of GST Bills in Parliament
The Lok Sabha passed the four GST Bills on 29 March 2017.
The Rajya Sabha passed the Bills on 6 April 2017.
The Bills were subsequently enacted as Acts on 12 April 2017.
After the enactment of the Central GST laws, the legislatures of different States passed their respective State Goods and Services Tax (SGST) Bills.
Launch of GST on 1 July 2017
After the enactment of the necessary GST laws, Goods and Services Tax was launched across India with effect from 1 July 2017.
The introduction of GST created a unified indirect taxation system in the country.
The Jammu and Kashmir State Legislature passed its GST Act on 7 July 2017. This brought the entire country under the unified GST framework.
Exam Point: GST was launched in India on 1 July 2017, while the Jammu and Kashmir legislature passed its GST Act on 7 July 2017.
GST and Securities Transactions
The sale and purchase of securities are not subject to GST.
Transactions involving securities continue to be governed by the Securities Transaction Tax (STT).
Therefore, GST does not apply to the sale and purchase of securities.
Important Timeline of GST Formation
| Year/Date | Important Development |
|---|---|
| 1986 | MODVAT introduced by V. P. Singh |
| 1999 | Single common GST proposed and endorsed |
| 2002 | Vijay Kelkar Task Force constituted |
| 2005 | Kelkar Committee recommended GST |
| February 2006 | 1 April 2010 proposed as GST rollout date |
| 22 March 2011 | 115th Constitution Amendment Bill introduced |
| August 2013 | Standing Committee submitted its report |
| 2014 | Earlier GST Bill lapsed after dissolution of 15th Lok Sabha |
| February 2015 | 1 April 2017 set as new GST implementation target |
| May 2016 | Lok Sabha passed Constitution Amendment Bill |
| August 2016 | 101st Constitution Amendment Act passed |
| 29 March 2017 | Lok Sabha passed four GST Bills |
| 6 April 2017 | Rajya Sabha passed GST Bills |
| 12 April 2017 | GST Bills enacted as Acts |
| 1 July 2017 | GST launched across India |
| 7 July 2017 | Jammu and Kashmir passed its GST Act |
Key Points
- India’s indirect tax reform process began in 1986 with the introduction of MODVAT.
- V. P. Singh introduced MODVAT in 1986.
- Preliminary discussions on State-level VAT were initiated during the P. V. Narasimha Rao government.
- A single common GST was proposed and endorsed in 1999.
- The economic advisory panel included former RBI Governors I. G. Patel, Bimal Jalan, and C. Rangarajan.
- The Asim Dasgupta Committee was formed to design the GST model.
- The GST technology and logistics infrastructure later became known as GSTN in 2015.
- The Vijay Kelkar Task Force was constituted in 2002.
- The Kelkar Committee recommended GST in 2005.
- P. Chidambaram proposed 1 April 2010 as the GST rollout date in February 2006.
- The 115th Constitution Amendment Bill was introduced on 22 March 2011.
- The GST constitutional amendment became the Constitution (One Hundred and First Amendment) Act, 2016.
- 18 States ratified the Bill within 15 to 20 days.
- The four major GST Bills were passed by the Lok Sabha on 29 March 2017.
- The Rajya Sabha passed the Bills on 6 April 2017.
- GST laws were enacted as Acts on 12 April 2017.
- GST was launched on 1 July 2017.
- Jammu and Kashmir passed its GST Act on 7 July 2017.
- The sale and purchase of securities are not subject to GST.
- Securities transactions continue to be governed by Securities Transaction Tax (STT).
Quick Revision Summary
The development of GST in India began with MODVAT in 1986. A common GST was proposed in 1999, followed by the Vijay Kelkar Task Force in 2002 and the GST recommendation in 2005. The 115th Constitution Amendment Bill was introduced in 2011, but the GST process faced delays. The constitutional framework was finally created through the 101st Constitutional Amendment Act, 2016. The major GST Bills were passed by Parliament in March and April 2017, and GST was launched on 1 July 2017. Securities transactions remain outside GST and are governed by STT.