Industry Urges GST Overhaul: Integrating Key Sectors to Expand Tax Base and Reduce Rates
Industry associations have formally petitioned the Finance Minister and CBIC to initiate a comprehensive review of the GST framework, aiming to broaden the tax base by including petroleum products, electricity, and real estate under the indirect tax net.
GstTax ReformReal EstatePetroleum ProductsElectricityReal EstateJun 03, 2025
Calling for an urgent review in the upcoming GST Council meeting to consider this, the “industry in its pitch to Finance Minister Nirmala Sitharaman, Revenue Secretary Arvind Shrivastava, and the Central Board of Indirect Taxes and Customs (CBIC) has suggested that once included, this move will help in reducing overall GST rates by integrating key sectors—petroleum products, electricity, and real estate—into the GST system,” sources added.
Since India's GST collections have shown robust growth in recent months, in May 2025, the country recorded a significant 16.4% year-on-year increase in GST collections, reaching ₹2.01 lakh crore. This surge was primarily driven by a notable rise in taxes collected from imports, which reached its highest monthly contribution in nearly three years. Industry feels “once included, these three categories will help reduce cascading taxes and give the much-needed elbow room to the government in terms of revenue generation, to consider substantial rate cuts across the board,” sources said who are in privy to these representations.
Key Industry Recommendations
1. On Petroleum Products : The industry proposes a phased inclusion of petroleum items under GST, starting with aviation turbine fuel (ATF) and natural gas, given the government's more effective control over these commodities. “The industry suggests that the government should take up the proposal to the GST Council on this category,” sources added.
2. On Electricity : Recognizing electricity as a critical input across all sectors, the “industry advocates for its inclusion in the GST framework to eliminate cascading taxes and reduce operational costs,” sources said.
3. Real Estate : While certain elements of real estate—like rentals, leases, and works contracts—are already under GST, “there are restrictions on input tax credit (ITC) for goods and services used in construction. The industry suggests a phased approach, beginning with the removal of ITC restrictions, to promote compliance and reduce tax inefficiencies,” sources said.
Rationale for Reform
Sources claimed that the Industry stakeholders argue that integrating these sectors into the GST system would:
- Expand the Tax Base : Including petroleum, electricity, and real estate would bring significant economic activities under the GST net, enhancing revenue collections.
- Eliminate Cascading Taxes : The current tax structure leads to tax-on-tax scenarios, increasing the overall tax burden. Inclusion of these sectors would streamline the tax process and reduce costs for businesses.
- Enhance Compliance : Simplifying the tax structure and removing ITC restrictions would encourage greater compliance among businesses, leading to more accurate tax reporting and collection.
Way Ahead
While these proposals have reached the top office dealing with the matter, it is important to note that when it comes to petroleum products, the government has tried not once, but many times, by taking the inclusion of ATF under the GST net as an agenda item for the consideration of the GST Council in the past. It was as recent as the 55th GST Council meet at Jaisalmer, which had an agenda item to include ATF under GST to begin with the petroleum products, but the council rejected the proposal.
Also, the reservation on this subject is very strong from not just the opposition-ruled states, but also BJP-ruled states are not in favor of this proposal as this category is poised to have a significant impact on state revenues, as it is one of the cash cows to help run state finances smoothly.
Similarly, on real estate, the industry first pitched that real estate should be partially under GST at a lower rate without ITC, whereas, initially, the category did give ITC benefits to the industry, but now the industry wants a re-look all together.
Thirdly, on electricity too, states have expressed reservations in the past.
However, the industry's call for a comprehensive review of the GST framework underscores the need for structural reforms to accommodate evolving economic activities. By expanding the tax base and simplifying the tax system, India can enhance its fiscal health and promote sustainable economic growth.
To be seen is whether the center actually takes these key industry demands to the upcoming GST Council meet or not.
Frequently Asked Questions
What is the main demand of the industry regarding the GST framework?
The industry is demanding a comprehensive review of the GST framework to broaden the tax base by including petroleum products, electricity, and real estate under the indirect tax net.
Why is the inclusion of petroleum products under GST being proposed?
The inclusion of petroleum products under GST is proposed to help reduce cascading taxes and provide the government with more revenue generation flexibility to consider rate cuts across the board.
What is the industry's recommendation for the inclusion of electricity under GST?
The industry advocates for the inclusion of electricity in the GST framework to eliminate cascading taxes and reduce operational costs for businesses.
What changes does the industry suggest for the real estate sector under GST?
The industry suggests a phased approach to remove input tax credit (ITC) restrictions for goods and services used in construction, promoting compliance and reducing tax inefficiencies.
What are the potential benefits of integrating these sectors into the GST system?
Integrating these sectors into the GST system would expand the tax base, eliminate cascading taxes, and enhance compliance, leading to more accurate tax reporting and collection.
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