In the GST 2.0 regime, which brought in major rate cuts to the tax, Gujarat and Karnataka have managed to grow their collections faster compared to Maharashtra, Tamil Nadu and Uttar Pradesh, among the top States.
The two States grew their post-settlement GST (the sum of GST revenues of the States/UTs and the SGST portion of the IGST settled to the States/UTs) at 28 per cent and 23 per cent y-o-y, respectively in April-August 2026. In comparison, Maharashtra (18 per cent), Uttar Pradesh (17 percent) and Tamil Nadu’s (16 per cent) growth was on par with the national average of 16 per cent during the period.
The consumption play
GST rate cuts kicked in on September 2025, and the collections in this fiscal year have come after significant cuts across several items such as everyday essentials, electronics, vehicles, and construction materials, among others. Experts say the divergence in State-wise GST collections and differential impact of the GST rationalisation stems from different economic profile and tax bases of the States along with differences in compliance efficiencies.
The regional variance in GST collections, among other things, indicates how last year’s GST rationalisation has played out, said Chief Economist, Bank of Baroda. In States that have seen above-average collections growth, rate cuts may have helped pick up in physical consumption while in others, consumption has not really fired up, he noted. Tamil Nadu’s slower collections growth, for instance, may indicate lower pick up in consumption despite rate cut, he added.
Further, in majority of the top 10 States, the GST growth in August was lower compared to the performance in the April to August period. Gujarat (28 per cent) , Karnataka (19 per cent), and Uttar Pradesh (17 per cent) led the growth pack. In comparison, Maharashtra (13 per cent) and Tamil Nadu (7 per cent) saw slower growth in the month among the top five States.
The right comparison
A consulting firm Kearney, said Karnataka is the right peer to compare with Tamil Nadu, rather than Gujarat or Maharashtra. Karnataka’s economy is similar to Tamil Nadu’s mix of manufacturing and services, yet the former converts a significantly higher share of its consumption base into its SGST collections, he explained.
“Karnataka’s vast domestic B2B IT-services base generates SGST at 18 per cent and has a limited impact of GST 2.0,” he added. “In comparison, Tamil Nadu’s core manufacturing sectors such as textile, auto components, engineering goods, and others have all had an impact of GST 2.0 rate cuts.”
Tamil Nadu’s welfare model also does a lot more in transfers in kind which inflate household consumption surveys but do not generate tax, Chandra added. “Karnataka’s cash transfer model through Gruha Lakshmi keeps welfare spending in taxable channels.”
Businessline’s queries to Tamil Nadu’s finance department on softening GST collections and relative performance to other States remained unanswered at the time of publishing.
Another tax expert said consumption patterns, overall tax compliance trends, sector-specific performance and timing of IGST settlements, can all materially influence State-wise collections. However, it would be premature to attribute weaker collections in any State solely to GST rationalisation, he said, adding that the trend should be ideally observed over a longer period.
