Recent tax rationalisations — in GST and personal income tax — combined with the geopolitical shock of the West Asian crisis are straining the Centre's revenue receipts in 2026-27. Despite these headwinds, strong non-tax revenues and front-loaded capital expenditure may keep the fiscal deficit broadly on track at around 4.6% of GDP.

• Gross Tax Revenue (GTR): Total tax collections of the Central government before deducting States' share and cess/surcharge collections. It comprises Direct Taxes (income tax, corporate tax) and Indirect Taxes (GST-Centre, excise, customs).
• Net Tax Revenue: GTR minus devolution to States. Historically net-to-gross ratio ≈ 65% (FC16 retained 41% devolution share).
• Fiscal Deficit: Excess of total government expenditure over total receipts excluding borrowings. Measures the net borrowing requirement. Fiscal Deficit = Total Expenditure − (Revenue Receipts + Non-debt Capital Receipts). The FRBM Act, 2003 mandates annual fiscal consolidation targets.
• Revenue Deficit: Excess of revenue expenditure over revenue receipts — indicates that the government is borrowing to fund consumption spending (not investment).
• Primary Deficit: Fiscal Deficit minus interest payments — shows the extent of borrowing for non-interest purposes.
• Tax Buoyancy: Ratio of percentage change in tax revenue to percentage change in GDP. Buoyancy > 1 means taxes grow faster than the economy. PIT buoyancy of zero in 2025-26 signals that the rate rationalisation nullified economic growth's revenue dividend.
• Implicit Price Deflator (IPD): The broadest measure of inflation, derived by deflating nominal GDP to arrive at real GDP. It covers all goods and services in the economy — wider than CPI (urban consumer basket) or WPI (wholesale producer prices).
• Divisible Pool: The pool of central taxes that is shared with States per the Finance Commission formula. The divisible pool includes income tax and corporation tax but excludes cesses and surcharges — a critical distinction that shapes how new cesses (like the HSNS Cess) affect States.

GST was introduced on 1 July 2017 via the 101st Constitutional Amendment Act, 2016, which inserted Articles 246A, 269A and 279A into the Constitution. GST is a dual levy — Centre (CGST) and State (SGST) — with an integrated tax (IGST) on inter-State supply.

• The GST Council (Article 279A) is a joint forum of the Union Finance Minister (chairperson) and State Finance Ministers. Decisions are by a three-fourths majority — Centre holds one-third of total votes, States hold two-thirds.
• The original GST rate structure had four slabs: 5%, 12%, 18% and 28%, with a cess on demerit goods over the 28% slab. Rate rationalisations were undertaken in 2025-26 — reducing rates on several items — causing initial revenue sacrifice on the expectation of base expansion.
• GST Compensation Cess: Levied under the GST (Compensation to States) Act, 2017 to compensate States for revenue loss during the first five years of GST. The cess was extended beyond 2022 to retire borrowings taken during COVID. It was discontinued as of 2026, with the HSNS Cess introduced in its place from 1 February 2026.

Personal Income Tax (PIT) in India is levied under the Income Tax Act, 1961. The Finance Act 2020 introduced an optional new tax regime with lower rates but without exemptions/deductions. The Finance Act 2023 made the new regime the default.

Substantive rate rationalisations in 2025-26 caused PIT growth to fall to a near-zero buoyancy — with revenue growing only 0.037%, and recovering only to 6.8% in Q1 FY27.

• India imports approximately 85% of its crude oil requirements. A sustained rise in global crude prices — triggered by West Asian conflict — raises the subsidy bill, raises imported inflation, widens the current account deficit and depreciates the rupee (increasing external debt servicing costs).
• Union Excise Duty on fuels (petrol, diesel) is levied under the Central Excise Act, 1944. It is not part of the GST framework — petroleum products were kept outside GST's ambit by a conscious legislative choice (States' revenues from VAT on fuel are substantial). Excise duty reductions thus directly impact the Centre's own revenues without compensation mechanisms.
• Excise duty contracted by 22.4% in Q1 FY27 due to the fuel duty cut to provide consumer relief. A windfall tax on exports of diesel, petrol and aviation turbine fuel (ATF) was increased from August 3, 2026, to partially recover lost revenue.

• Health Security se National Security (HSNS) Cess: Introduced w.e.f. 1 February 2026. Cesses are not part of the divisible pool — States receive no share from cess revenues under the Finance Commission formula. This dilutes effective tax devolution to States even as overall GTR is maintained.
• Windfall tax: A tax on supernormal profits earned by export-oriented oil companies during periods of elevated global prices. India introduced it in July 2022 and has revised it periodically based on international prices.
• Import duties on gold and silver: Raised as part of revenue-mobilisation efforts. India is the world's second-largest gold consumer; customs duty adjustments directly affect smuggling incentives and the current account deficit.

Capital expenditure (capex) on infrastructure has a fiscal multiplier effect — it generates demand, creates assets with long-term productive capacity, and crowds-in private investment.

The Centre's capex grew by 23.7% in Q1 FY27 (after contracting 23.3% in Q4 FY26), signalling deliberate front-loading as a counter-cyclical measure despite fiscal constraints.

• GS-III: Union Budget process; fiscal deficit, revenue deficit, primary deficit — definitions and implications; FRBM Act, 2003 and fiscal consolidation roadmap; tax buoyancy; Finance Commission (Article 280).
• GS-II: Centre-State financial relations; divisible pool and cess-exclusion; role of CGA and CAG.
• Prelims hooks: GST introduced by 101st Constitutional Amendment, 2016; Article 279A — GST Council; cesses are outside the divisible pool; FRBM Act, 2003; windfall tax first introduced in India in July 2022; RBI dividend transferred to Centre under Section 47 of the RBI Act, 1934.

The Supreme Court's Vanashakti v Union of India judgment (29 July 2026) has closed the administrative route to regularising EC violations but has simultaneously recognised Parliament's statutory authority to frame a fresh, one-time, environmentally robust scheme — a balanced ruling that neither absolves violators nor mandates indiscriminate closure.

• Step 1 — Screening: Projects classified as Category A (national-level appraisal by MoEFCC), Category B1 (State-level, requiring full EIA) or Category B2 (State-level, no EIA, only scrutiny).
• Step 2 — Scoping: Expert Appraisal Committee (EAC for Category A) or State EAC issues Terms of Reference (ToR) for the EIA study.
• Step 3 — EIA Study: Accredited consultants conduct baseline environmental data collection and impact prediction.
• Step 4 — Public Consultation: Mandatory public hearing in the project area for Category A and B1 projects; local communities and affected persons are heard.
• Step 5 — Appraisal: EAC/SEAC reviews the EIA report and public hearing proceedings and recommends grant or rejection of EC.
• Step 6 — EC Grant: MoEFCC or SEIAA issues EC with conditions. Project cannot commence until EC is granted.

• 2017 Notification (EIA Violation Window): MoEFCC issued a notification in 2017 permitting projects that had commenced without prior EC to apply for post-facto EC — subject to penalties and remediation. The Supreme Court had questioned this mechanism as creating a perverse incentive to violate first.
• 2021 Standard Operating Procedure (SOP / Office Memorandum): MoEFCC issued an OM in 2021 attempting to streamline the handling of violation cases. This was also challenged before the Supreme Court.
• Vanashakti v Union of India (29 July 2026): The Supreme Court ruled that both the 2017 Notification window and the 2021 OM are legally unsustainable for fresh applications. Projects that did not apply under these windows cannot now seek regularisation through administrative routes.

The Court drew a sharp line between an Office Memorandum (OM) — an administrative document issued by a ministry official — and a Statutory Notification issued under powers explicitly conferred by Parliament through the EPA.

• An OM cannot override a statutory requirement like prior EC — it operates within the existing legal framework, not above it.
• A statutory notification under Section 3 of EPA, however, is itself an exercise of legislative power delegated by Parliament. It can create new rights and obligations — including a fresh regularisation window.
• This distinction is significant: the Court did not close the policy space; it merely clarified that the correct instrument for a new scheme is a notification, not an OM.

• 1994: First EIA Notification under EPA 1986 — made EC mandatory for 29 categories of projects.
• 2006: EIA Notification, 2006 — comprehensive overhaul; introduced Category A/B classification, public consultation mandate, accreditation of consultants.
• 2020 (Draft EIA Notification): MoEFCC released a draft that proposed to reduce public consultation time and allow post-facto EC. Withdrawn after widespread criticism from environmentalists and civil society.
• 2017 Violation Window + 2021 OM: Successive attempts at administrative regularisation — both struck down / restricted by SC in Vanashakti.
• 2026 — Vanashakti Judgment: Defines the constitutionally and statutorily permissible outer boundary of any future regularisation framework.

• GS-III: Environmental Impact Assessment; Environment (Protection) Act, 1986; pollution control and environmental clearances; judicial interventions in environmental governance.
• GS-II: Statutory vs administrative instruments; judicial review of executive action; constitutional architecture of environmental legislation (Entry 20, Concurrent List — "Economic and Social Planning"; Entry 17A — forests; Article 21 — right to a clean environment per judicial expansion).
• Prelims hooks: EIA Notification = under Section 3, EPA 1986; EC authority = MoEFCC (Cat. A) and SEIAA (Cat. B); EPA 1986 enacted following Stockholm 1972 and Bhopal 1984; Article 21 expanded to include right to a clean environment in Subhash Kumar v State of Bihar (1991).