The revised GST rates will be implemented w.e.f. 22.9.2025 which resultantly would result in higher cash flows in the hands of public at large. The rate reduction would increase the consumption level, “FM Sitharaman says reforms to inject Rs 2 lakh crore into economy” resultantly people will have more cash in hand.
The rates on various items have been reduced to 5% and few are even reduced to nil rate and exempt supplies.
But there are so many queries coming from the business community on what to be done with change in rates.
I really want to keep everything simple so that a normal reader could understand the things which I am trying to convey. There is a provision in GST which talks about the change in rate of tax and its implication on supplies. Normally, the supply (the date when output liability arises) is considered to be the date of issue of invoice or the date before or at the time of removal of goods. In normal practice, supply is considered when the supplier issues the invoice.
The all-possible cases have been tabularised below for a better under understanding:
| Goods supplied | Invoice issued before change | Payment received before change | Time of supply | Applicable rate of tax |
| Before change | No | No | Earliest of invoice or payment | New rate |
| Before change | No | Yes | Date of invoice | Old rate |
| Before change | Yes | No | Date of payment | Old rate |
| After change | Yes | Yes | Earliest of invoice or payment | Old rate |
| After change | Yes | No | Date of payment | New rate |
| After change | No | Yes | Date of invoice | New rate |
There are numerous queries among the taxpayers on what to be done with the ITC as on 22.9.2025. The probable solution for the same have been provided under as follows:
| Cases | Description | Probable answer | Refund Available? |
| 1 | Where the GST have been reduced from 12% to 5% | The ITC on the portal shall be utilized on future output tax liabilities. | No, when there is a change in rate of tax and ITC accumulates due to this, then there arises no refund. |
| 2 | Where the GST have been reduced from 12% to Nil rated | The ITC on the portal shall be utilized on future output tax liabilities. | No, when there is a change in rate of tax and ITC accumulates due to this, then there arises no refund. |
| 3 | Where the GST have been reduced from 12% to exempted supplies | The ITC in respect of such item needs to be reversed. | No refund. |
It should be noted that refund is available in cases where there is a case of inverted duty structure, i.e. the ITC on input supplies is higher than output tax liabilities.
There also arises a question among the taxpayers that whether they should be passing the benefit of reduced ITC to its customer or not w.e.f. 22.9.2025 considering that they have the goods purchased at higher GST rates as on 22.9.2025. There will be a blockage of working capital in this case since the new outward supplies will be taxed at lower rates and the taxes paid to the supplier at higher rates.
For being tax compliant, the taxpayers must pass on the benefits to its customers. There are numerous items which are still taxed at 18% from which the ITC available shall be utilized. The main aim of this rate reduction is to increase the purchasing power of people so that consumption may increase.
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I have tried my level best to make you all understand the changes which are made and its implications.
For any queries you may feel free to write me at taxesbydk@gmail.com.
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very helpful and nicely explained
very helpful !
Crystal clear explanation. want more articles from your side!
very well written!
It’s easy to understand for a first time reader, Thank you so much Dhairya, do come with more articles and update us 😁
Really helpful