The Centre for Science and Environment (CSE) has urged the Union government to rationalise the goods and services tax on recycled materials, arguing that lower GST rates could significantly strengthen India’s green economy, support small businesses and bring millions of informal waste workers into the formal system. The recommendations were submitted to Finance Minister Nirmala Sitharaman ahead of the Union Budget 2026.
According to the Delhi-based think tank, tax reform in the waste sector is critical if India is to maintain momentum on green growth and move closer to its Net Zero by 2070 goal. While recent budgets have prioritised clean energy and industrial decarbonisation, CSE says the recycling economy remains constrained by a tax structure that treats recycled materials on par with virgin resources.
Why GST Reform Is Key to a Circular Economy
CSE Director-General Sunita Narain said GST and broader fiscal policies can play a decisive role in shaping India transition to a greener economy. She noted that effective tax design could unlock gains across energy, industry, waste, transport and agriculture, while strengthening domestic resource security.
The organisation highlighted that recycled materials currently attract the same GST rates as newly extracted raw materials. This, CSE argues, penalises recycling and discourages the formalisation of waste supply chains, despite their importance in building a circular economy.
In its letter to the finance ministry, the think tank called for two key reforms: lowering GST on recyclable waste and formally integrating informal waste supply chains. Without these changes, large parts of the recycling economy are pushed into informal channels, weakening environmental outcomes and industrial competitiveness.
Fiscal Gains and Benefits for MSMEs and Workers
CSE’s recommendations are backed by findings from its recent study, Relax the Tax which examined the impact of GST on recycling. The report found that the current tax regime has resulted in a “double loss” reduced tax compliance and diminished recycling efficiency.
According to the study, cutting GST on recyclable waste to 5 per cent or zero, alongside partial integration of informal supply chains, could generate an estimated fiscal gain of around Rs 34,000 crore annually. With full integration, this figure could rise to over Rs 90,000 crore.
The think tank stressed that such reforms would directly benefit micro, small and medium enterprises, which dominate India’s recycling sector, as well as millions of informal waste workers who currently operate without legal protections or social security.
CSE’s analysis covered 12 major waste streams, including metal scrap, plastic waste, e-waste, battery waste, paper, glass, tyres and end-of-life vehicles. Across all sectors, the organisation found significant scope for reuse, improved material efficiency and pollution reduction.
Using Tax Policy to Drive Industrial Decarbonisation
Beyond waste recycling, CSE also flagged inconsistencies in how GST is applied to low-carbon industrial products, particularly cement. Narain pointed out that while India produces multiple types of cement with varying carbon footprints, all are taxed at the same rate, offering no incentive for cleaner production.
Ordinary Portland Cement, one of the most commonly produced varieties, is also the most emission-intensive. Other forms, which use industrial waste as raw material, have significantly lower carbon intensity but receive no tax advantage.
In another CSE report, Decarbonizing India: The Cement Sector, the organisation proposed lower GST rates for cement types with lower emissions, such as Portland pozzolana cement, Portland slag cement, composite cement and limestone calcined clay cement. Such a move, it argued, would reduce reliance on high-emission cement and encourage demand for low-carbon alternatives.
CSE experts also highlighted similar opportunities in iron and steel manufacturing, where the reuse of steel scrap and industrial waste could significantly cut emissions but is currently discouraged by high GST rates on recycled inputs.
Recognising Waste as a Resource
In its communication to the finance ministry, CSE emphasised that tax reform in the waste sector is not merely a fiscal exercise but a shift in perspective. Lower GST on recyclables, the organisation said, would acknowledge waste as a valuable resource rather than an economic burden.
Apart from environmental and industrial gains, the move could have wide social benefits by formally recognising and protecting millions of informal waste workers who remain outside policy frameworks and basic labour rights.
As Budget 2026 approaches, CSE has called on the government to use fiscal policy as a tool to align economic growth with environmental responsibility, arguing that a circular economy cannot be built without supportive taxation.