New Delhi: The Centre and state governments collected ₹1.96 trillion in Goods and Services Tax (GST) in July, a 7.5% increase from the same period last year, official data showed on Friday. However, a sharp rise in tax refunds moderated the growth in net revenue.

After adjusting for refunds, the net GST revenue stood at ₹1.69 trillion, just 1.7% higher than the year-ago period. Businesses received ₹27,000 crore in tax refunds in July, marking a 67% increase from the same month last year.

Despite the surge in refunds, cumulative GST revenue for the current fiscal year has grown 8.4% to ₹7.1 trillion after refunds.

Gross central and state GST receipts, prior to refunds, rose more than 9% in July. Tax collections on inter-state sales and imports increased by 5%. However, GST compensation cess, levied on items such as tobacco, carbonated beverages, and automobiles, particularly sport utility vehicles, contracted by 2% year-on-year in July.

The Federation of Automobile Dealers Association (FADA) had noted last month that automobile retail grew by just 0.73% year-on-year in June, which is typically the weakest month for auto sales. Taxes on June transactions are collected in July.

The 117% increase in refunds on domestic sales, much of which may be attributed to inverted duty structure refunds, underscores the urgency of rate rationalisation under GST, according to Vivek Jalan, partner at Tax Connect Advisory, a multi-disciplinary tax consultancy.

Instances where raw materials are taxed at higher rates than the final product often lead to refund claims, an anomaly the government has previously tried to address but has not fully resolved. While these inputs are used by businesses, the tax rate visible to the end consumer is that of the final product, making upward rate corrections politically sensitive.

"The increase in refunds augers well for businesses as it indicates stability in the online refund processes and quicker refund sanctions," said M.S. Mani, partner at Deloitte India.

Among large state economies, Maharashtra, Tamil Nadu, Karnataka, Gujarat, and Uttar Pradesh reported less than 10% annual GST revenue growth in July. In contrast, Punjab and Haryana each posted 12% growth, while Andhra Pradesh saw a 14% increase.

GST revenues have steadily risen over the years, driven by economic expansion, greater formalisation, and enhanced compliance efforts. Robust data capture across the supply chain and cross-verification with other data sources have made tax evasion more difficult under the new regime.

The GST Council is currently reviewing further rate rationalisation and simplification of the tax framework.

Citing the modest 1.7% growth in net GST receipts for July, Pratik Jain, partner at Price Waterhouse & Co LLP, said, "The GST council may like to discuss possible measures to augment revenues in its next meeting…With GST compensation cess going away, states may also be a bit more concerned about the slowdown in GST collections."