GST reforms have significantly reshaped India’s fiscal federalism by creating a system of shared taxation powers between the Centre and the States. Both levels of government now levy GST on goods and services, replacing numerous indirect taxes previously imposed separately. The GST Council, a cooperative federal institution, decides on tax rates, exemptions, and procedural rules, institutionalizing cooperative federalism and promoting joint decision-making.

While GST simplifies taxation and fosters a common national market, it also limits states’ independent powers to levy indirect taxes, thereby reducing fiscal autonomy. The initial compensation mechanism helped mitigate revenue losses for states during implementation, but its eventual cessation may lead to renewed fiscal pressures and potential tensions between the Centre and States.

Overall, GST enhances fiscal integration, promotes policy coordination, and reduces inter-state trade barriers, creating efficiency and uniformity. However, continuous dialogue, cooperation, and consensus in the GST Council remain essential to balance state autonomy with national fiscal objectives, ensure equitable revenue distribution, and strengthen cooperative federalism in India.