On the 79th Independence Day, Prime Minister Shri Narendra Modi emphasised GST as an important reform. He called for new GST reforms, some of which are listed below, to help common people, farmers, the middle class, and MSMEs. The government’s proposals, which were approved by the GST Council at the 56th GST Council meeting, aim to strengthen industries, increase economic activity, and promote growth.
The original GST regime, celebrated as a “one nation, one tax” milestone, gradually became entangled in a web of four major tax slabs—5%, 12%, 18%, and 28%—leading to chronic confusion, disputes on classifications, and unpredictable consumer pricing. Businesses, especially MSMEs and startups, struggled not just with compliance but also with determining the right tax rates for their products. The pressure for a simpler, growth-oriented overhaul had been mounting for years.
1. The GST 2.0 reforms, effective from September 22, 2025, bring substantial changes to the tax rates on goods and services across India. This article addresses the GST rate cuts, particularly the reduction of rates from 12% to 5% and 28% to 18%, and explores the related compliance considerations under Section 18(4) of the CGST Act concerning input tax credit (ITC) reversal.
Key Takaways for ITC Reversal :
| Scenario | GST Implication | ITC Reversal Needed? |
| Rate cut from 18%/12% to 5% | Supply still taxable | No |
| Rate cut from 28% to 18% | Supply still taxable | No |
| Supply becomes wholly exempt | Output tax is zero | Yes |
2. The New Slabs: Simpler and More Transparent
From September 22, 2025, India’s GST now operates on three straightforward slabs:
5% Daily Goods
18% Most Items
40% – Sin Goods (e.g. Tobacco)
3. GST Mega Reforms: Don’t Miss This Before Applying New Tax Rates :
Section 14 of CGST Act, 2017 lays down the time of supply rules when there is a change in GST rate.
It decides whether the old rate or the new rate applies by looking at three events:
A. Date of supply (when goods/services are actually delivered)
B. Date of invoice
C. Date of payment
Why is it important now?
From 22nd Sep 2025, new GST rates apply on many goods and services.
So, if your supply, invoice, and payment dates fall around this cut-off, Section 14 decides the applicable tax rate.
Simple scenarios for clarity
Supply before 22-Sept, but invoice & payment both after → New rate applies.
Supply before 22-Sept, invoice before, payment after → Old rate applies.
Supply before 22-Sept, payment before, invoice after → Old rate applies.
Supply after 22-Sept, invoice before & payment after → New rate applies.
4. A key promise of GST 2.0 is direct relief to the common man. Here’s how:
- Most daily essentials—such as hair oil, shampoo, toothpaste, toilet soap, toothbrushes, and shaving cream—move down from 18% to 5% GST.
- Dairy products (butter, ghee, cheese), packaged foods, feeding bottles, and baby napkins also drop to the 5% category..
- Medicine and healthcare see major relief: insurance policies, thermometers, oxygen equipment, diagnostic kits, glucometers, and corrective eyewear now attract either 5% or are zero-rated.
- Agricultural items—tractors, bio-pesticides, micro-nutrients, drip irrigation, and earth-moving equipment—become more affordable, aiding farmers directly.
- Education goods, including maps, textbooks, and stationery, move to either 5% or 0%, easing back-to-school budgets for families.
5. The Central Board of Indirect Taxes and Customs (CBIC) has issued Notification No. 9/2025-Central Tax (Rate), dated September 17, 2025, on the recommendations of the 56th GST Council meeting chaired by Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman on 3rd September 2025 in New Delhi.
The New Rate Structure (Schedule-wise)
| S.NO | CGST Rate (%) | Schedule | Description |
| 1. | 2.5 | I | Essential goods, including milk products, honey, cereals, pulses, jaggery, edible oils, dried fruits, affordable footwear and apparel, medicines, diagnostic kits, fertilizers, agarbatti, soaps, utensils, and agricultural machinery |
| 2. | 9 | II | Processed foods, household products, and industrial inputs. |
| 3. | 20 | III | Luxury and sin goods |
| 4. | 1.5 | IV | Selected essentials |
| 5. | .125 | V | Specified precious goods |
| 6. | .75 | VI | Special category goods |
| 7. | 14 | VII | Certain higher-taxed categories. |
6. Other Companion Notifications to Noted
Along with Notification No. 9/2025-CT(Rate), several related notifications have been issued which are equally important for compliance:
- Notification No. 10/2025-CT(Rate):Provides the updated Nil/Exempt list (supersedes Notification No. 02/2017-CT(Rate)).
- Notification No. 13/2025-CT(Rate):Covers handicrafts and prescribes concessional GST rates (generally 5% total).
- Notification No. 14/2025-CT(Rate):Relates to bricks, tiles, fly-ash products, etc., at 12% total (6% CGST + 6% SGST).
All the above Rate Notifications shall be effective from 22.09.2025.
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