India’s net goods and services tax (GST) collections grew 2.2% year-on-year in December 2025 to ₹1.45 lakh crore, marking the slowest pace of growth in indirect tax revenues since December 2024. The subdued performance highlights the pressure from weak domestic demand and elevated refund outlays, despite import-linked collections remaining strong.
Official data released on Thursday showed that gross GST collections stood at ₹1.74 lakh crore in December, up 6% from the same month last year. However, higher refunds significantly diluted net revenue growth.
Domestic Demand Remains Soft
Collections from domestic transactions rose a modest 1.2% to a little over ₹1.22 lakh crore in December, extending the muted trend seen in November. In contrast, GST revenues from imports jumped nearly 20% to ₹51,977 crore, highlighting a growing divergence between domestic consumption and import-led activity.
The gap suggests that while supply chains and manufacturing linked to imports remain resilient, consumer demand within the domestic economy continues to lag.
Refunds Hit FY26 high
Refunds emerged as a major drag on net collections during the month. Total GST refunds surged 31% year-on-year to ₹ 28,980 crore in December, the highest level recorded so far in FY26.
Refunds related to domestic transactions rose 2% from a year earlier, while refunds on imports more than doubled to nearly ₹18,400 crore, compared with ₹8,700 crore in December 2024. Even after excluding ₹10,538 crore under certain categories, refunds were still 11.6% higher on a sequential basis.
Post-GST 2.0 Trend
When analysed on a transaction-month basis, net GST revenues for November, the second full month after the rollout of GST 2.0, are 6.2% lower than collections from November last year. This represents the weakest year-on-year growth recorded so far under the revised GST framework.
GST rates were rationalised for several items, effective from September 2, 2025. Revenue officials have clarified that the compensation cess should be excluded from the base when assessing the impact of these changes.
Sharp Fall in Compensation Cess
Net compensation cess collections declined sharply to about ₹4,238 crore in December, compared with ₹12,003 crore in the same month last year. The drop reflects the gradual phasing out of the compensation mechanism as the transition period draws to a close.
For the first nine months of FY26, gross GST collections rose 9% to ₹16.5 lakh crore, while net collections stood at ₹14.5 lakh crore. These figures exclude compensation cess, which has fallen 97% to a negligible level from around ₹96,000 crore in the corresponding period last year.
State-wise Divergence Widens
Revenue officials have flagged concerns over uneven state-level performance. As many as 17 states recorded either negative or single-digit growth in GST collections during December.
States reporting contraction included Bihar (-7%), Delhi (-4%), Telangana and Tamil Nadu (-3% each), and Madhya Pradesh (-1%). Several large states also saw muted growth, including Maharashtra (4%), Karnataka (5%), Andhra Pradesh (3%), and Haryana (1%).
The wide divergence points to uneven economic recovery and varying consumption patterns across regions.
Mixed Signals for Fiscal Outlook
Industry analysts noted that gross GST collections excluding cess were broadly in line with December 2024 levels, suggesting that revenue losses from rate reductions introduced in September have been partly offset by higher volumes, though not to the extent initially expected.
The nearly 20% growth in import-related integrated GST indicates continued momentum in external trade and manufacturing activity. However, the weak 1.2% rise in domestic collections reinforces concerns that consumption demand remains constrained.
With the Union Budget 2026–27 approaching, December’s GST data highlights the need for policy focus on deepening GST 2.0 reforms. Key priorities include end-to-end automation of compliance, reduction in litigation, and a more calibrated credit framework to support growth without undermining revenue stability.
Overall, the December numbers show that while the GST system is adjusting to structural changes, the combination of weak domestic demand, high refunds and rate rationalisation has resulted in the slowest net revenue growth in a year, warranting close monitoring in the months ahead.
