Budget 2026: A top-up on tax reforms can shore up consumer confidence

India's economic narrative is increasingly anchored in domestic consumption, a crucial engine driving growth and resilience. The anticipation surrounding Budget 2026, as highlighted, underscores a strategic pivot towards sustaining and enhancing household purchasing power. This focus is not merely an economic preference but a recognition of the Indian economy's intrinsic structure, where a robust domestic demand acts as a buffer against global volatilities and a catalyst for sustained expansion. The proposed 'GST 2.0' framework emerges as a central pillar of this strategy, aiming for a more streamlined, expansive, and ultimately, a more equitable indirect tax regime.

To truly grasp the significance of 'GST 2.0', one must first understand the journey of the Goods and Services Tax (GST) itself. Introduced on July 1, 2017, through the 101st Constitutional Amendment Act, 2016, GST was heralded as a monumental tax reform. Its primary objectives were to eliminate the cascading effect of taxes, create a common national market, boost 'Make in India', and improve ease of doing business. Before GST, India's indirect tax system was fragmented, with a multitude of central and state levies (like excise duty, service tax, VAT, luxury tax, entry tax) leading to complex compliance, higher costs, and an inefficient supply chain. The constitutional backing for GST is primarily derived from Article 246A, which grants concurrent power to both the Parliament and State Legislatures to make laws with respect to GST. Additionally, Article 269A deals with the levy and collection of GST in the course of inter-State trade or commerce, while Article 279A establishes the GST Council, the apex decision-making body comprising the Union Finance Minister and state finance ministers.

'GST 2.0' as envisioned in the Budget 2026 discourse, represents an evolutionary phase of this reform. Its core tenets — simplified rates and broader coverage — directly address some of the existing challenges and unfulfilled promises of the initial GST rollout. The simplification of rates aims to reduce classification disputes, improve compliance, and make goods and services more affordable, thereby directly impacting disposable incomes. The proposed inclusion of petroleum products and real estate within the GST ambit is particularly transformative. Currently, petroleum products are subject to central excise duty and state VAT, leading to high fuel prices and significant revenue for both Centre and states. Real estate, too, operates under a fragmented tax structure involving stamp duties, registration fees (state levies), and GST on construction services. Bringing these under GST would allow businesses to claim input tax credit (ITC) on their purchases, reducing the cascading effect, making these sectors more transparent and potentially more affordable for consumers.

Key stakeholders in this reform include the Central Government, primarily the Ministry of Finance, which designs the fiscal policy and the Union Budget. The GST Council, with its unique federal structure, plays an indispensable role. Any decision to include petroleum or real estate, or to alter rates, requires a three-fourths majority vote within the Council, where the Centre has a one-third voting power and states collectively have two-thirds. State governments are crucial stakeholders due to the significant revenue implications, especially from petroleum products, which are a major source of their own-source revenue. Businesses stand to gain from streamlined ITC mechanisms and reduced compliance burdens, while consumers would benefit from potentially lower prices and increased affordability.

For India, the implications are profound. Economically, a successful 'GST 2.0' could unleash a new wave of consumption-led growth, boost manufacturing competitiveness, and attract greater investment. It would further formalize the economy by bringing more sectors under the organized tax net. Politically, achieving consensus within the GST Council on sensitive issues like petroleum and real estate would be a testament to cooperative federalism, albeit a challenging one given the revenue autonomy concerns of states. Socially, increased affordability could improve the quality of life and stimulate demand across various income groups. The future implications point towards a more efficient, transparent, and buoyant tax system, potentially leading to higher tax collections and better fiscal health for both Centre and states. However, the path is fraught with challenges, primarily the need for political will and inter-state consensus to overcome revenue dependency issues, especially for states that rely heavily on taxes from petroleum products and real estate transactions. The success of 'GST 2.0' will hinge on the ability of the GST Council to navigate these complexities while upholding the spirit of the 101st Amendment.