How GST Reform Strengthens India's Military Posture

In early September, the 56th GST Council meeting passed almost unnoticed outside the financial pages. Another set of tax tweaks, most thought. But for those of us who've spent a lifetime in uniform, 3 September 2025 will mark something quite different. For the first time, a fiscal reform has been written with national security front and center. When these new rates come into force on 22 September, the Army—indeed all three Services—will feel the change not in ledgers but in the field.

- MAJ GEN R.P.S. BHADAURIA (RETD)

Why? Because GST 2.0 isn't just a book-keeping adjustment. It's a combat readiness multiplier.

THE NUMBERS THAT MATTER

India's defence budget for FY 2025-26 stands at Rs 6.81 lakh crore—roughly $77-79 billion. On paper, that's a 9.5 per cent increase. But dig into the allocations and you see the squeeze. Only Rs 1.80 lakh crore (26 per cent) is earmarked for capital expenditure, the part that buys the tanks, aircraft, drones, and missiles we need for tomorrow's wars. Nearly half—Rs 3.11 lakh crore—goes to revenue expenditure, much of it salaries and pensions.

Until now, GST and customs quietly skimmed off as much as 12 per cent of the Army's procurement budget—about Rs 7,000-8,000 crore every year. It was a silent tax on readiness. With GST 2.0, that leakage ends. And when you look across the entire defence establishment—Army, Navy, Air Force, and other MoD procurement—analysts estimate savings of Rs 15,000-25,000 crore annually, or around Rs 60,000 crore over five years. That's 10-18 per cent more purchasing power without a rupee more in allocation. In military planning terms, that's decisive.

CAPITAL BUDGET: MORE FIREPOWER FOR THE ARMY

What does that mean in practice? The list of items now GST-free or slotted into the 5 per cent slab reads like an Army wish-list: UAVs and drones; C-130 and C-295 aircraft; tanks, armoured vehicles, artillery spares; software-defined radios; missiles and rockets; simulators and ejection seats; even underwater platforms.

Every one of these costs less from this month. Freed funds allow bigger orders: tanks, artillery, assault rifles, bulletproof jackets. And room for the new—AI-enabled sensors, electronic warfare devices, anti-drone systems, cyber and space assets.