GST Rate Change FAQ: Input Tax Credit, Price Impact & Time of Supply

This summary addresses common questions regarding GST rate changes. It clarifies that when a GST rate is reduced on goods, the new, lower rate applies to outward supplies, regardless of the rate at which the goods were purchased. Businesses are not required to reverse their input tax credit (ITC) on goods purchased at a higher rate, as long as the new rate is not zero. However, if goods become entirely exempt from GST, any existing ITC must be reversed. When a tax rate is reduced, the benefit must be passed on to the consumer, especially in cases where goods are sold at a Maximum Retail Price (MRP). For credit notes, the original GST rate at the time of the supply applies, as the credit note is an adjustment to the initial transaction. Additionally, the time of supply, determined by when the goods were delivered and when payment and invoices were issued, dictates the applicable tax rate. For example, if goods are delivered after a rate change, the new, lower rate applies.

Also Read 1. FAQs 1 on decisions of 56th GST Council Meeting 2. FAQs-2 on decisions of 56th GST Council 3. FAQ-3: GST Rate Updates for Goods & Handicrafts – 56th Council 4. FAQs 4: GST Rate Revision: New Advisory Allows Voluntary Sticker Updates on Unsold Stock

FAQ on ITC and GST Rate Changes – Practical Scenarios-56^th Meeting of GST Council dt. 03.09.2025

Q1. If certain goods were purchased on or before 21.09.2025 at a GST rate of 12%, and with effect from 22.09.2025, the GST rate is reduced to 5%, then at what rate will outward supply be taxable?

Answer: The applicable rate will be the new rate of 5% prevailing on the date of supply. Under GST, the tax liability is determined on the basis of the rate in force at the time of supply, irrespective of the rate at which tax was paid on purchases.

Q2. If goods purchased before 21.09.2025 at 12% are still lying in stock on 22.09.2025, when the GST rate is reduced to 5%, is the Registered Person required to reverse the differential Input Tax Credit (7%)?

Answer: No reversal is required. Input Tax Credit (ITC) once validly availed on inward supplies remains admissible, subject to Section 16 conditions. Merely because the outward tax rate has been reduced (but not to nil), there is no requirement to proportionately reverse ITC.

Q3. If goods purchased before 21.09.2025 at 12% were sold before 22.09.2025 but at a lower price (below cost), resulting in some unutilised ITC, will the balance ITC become blocked or require reversal?

Answer: Neither blocked nor reversed. ITC is available so long as it relates to taxable outward supplies. Merely selling at a lower price than the purchase cost does not disentitle the Registered Person from claiming ITC, provided the conditions of Section 16 are satisfied.

Q4. If goods purchased before 21.09.2025 at 12% GST become exempt (0%) with effect from 22.09.2025, what happens to the ITC already availed?

Answer: In such a case, ITC will have to be reversed. As per Section 18(4) of the CGST Act, where goods or services that were earlier taxable become exempt, the ITC relating to such stock is required to be reversed since no GST is payable on outward supply.

Section 18 (4) Where any registered person who has availed of input tax credit opts to pay tax under section 10 or, where the goods or services or both supplied by him become wholly exempt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption:

Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.

Q5. If goods attracted Compensation Cess up to 21.09.2025, but w.e.f. 22.09.2025, cess is no longer applicable, what happens to the cess component already paid?

Answer: The cess already paid is not refundable. It becomes part of the cost of goods. The past cess paid cannot be claimed back.

Q6. Up to 21.09.2025, goods were being sold at a transaction value of ₹1,00,000 with GST at 12%. From 22.09.2025, the tax rate is reduced to 5%. However, the registered person continued to maintain the same transaction value of ₹1,00,000/-. Is it mandatory to pass on a 7% discount to customers?

Answer: No. Because goods are  being sold on transaction value (excluding GST), in such a case the supplier is not required to reduce the price by the exact differential.

Q7. If goods are sold at a Maximum Retail Price (MRP) of ₹1,00,000, with GST at 12% up to 21.09.2025, and from 22.09.2025 the tax rate is reduced to 5%, can the goods continue to be sold at the same MRP of ₹1,00,000, or is it mandatory to reduce the price?

Answer: In this case, the supplier is required to pass on the benefit of tax reduction to the consumer. This generally requires proportionate reduction in price, i.e., approximately 7% in this example. Please note that whenever the rate of tax is reduced, the benefit must be passed on to the recipient by way of commensurate reduction in prices. If this is not implemented, the very objective behind the tax rate reduction will stand defeated.

Q8. If goods were supplied on or before 21.09.2025 when the GST rate was 12%, and thereafter on 22.09.2025 or later (When rate of GST is 5%) a credit note is issued in respect of those supplies, which GST rate should be applied on the credit note?

Answer : The GST rate applicable on the original supply date will apply to the credit note.

This is because, under Section 34 of the CGST Act, a credit note is always linked to the original tax invoice. The credit note is only a correction or adjustment of the earlier supply, and not a fresh supply. Therefore, even if the GST rate changes after the date of supply (e.g., reduced from 12% to 5% from 22.09.2025), the credit note must carry the same GST rate that was applicable on the date of the original supply, i.e., 12% in this case.

Q9. What happens to the applicable rate of tax, if Goods/ services or both  supplied  before the changes in GST rates come into force but the invoices were issued later?

Answer : As per Section 14 (a)(i) of CGST Act, 2017, in case the goods or services or both have been supplied before the change in rate of tax, and the invoice for the same has been issued after the change in rate of tax, then the time of supply i.e. date of liability to pay tax on such supply will be as follows:

i. If the payment is received after the change in rate of tax, then time of supply shall be the date of receipt of payment or the date of issue of invoice, whichever is earlier.

ii If the payment has been received before the change in rate of tax, the time of supply shall be the date of receipt of payment.

Q.10 What is the appropriate course of action in the following illustrative scenario? Please note: The dates and locations mentioned below are hypothetical and used solely for clarity.

Suppose an invoice was issued on 20.09.2025 for goods dispatched from Madhya Pradesh to Maharashtra. As per the agreed-upon terms and conditions, the supplier was responsible for delivery, and the actual delivery of goods was completed on 23 September 2025 at the recipient’s premises in Maharashtra.

The applicable GST rate on 20.09.2025 was 28%, whereas by 23.09.2025, the same goods were subject to a reduced rate of 18% GST.

Answer: As per Section 14 of the CGST Act, when there is a change in the rate of tax between the date of invoice and the date of supply, the applicable rate shall be determined based on the time of supply provisions.

In this case, since the supply is deemed to be completed only upon delivery at the recipient’s premises on 23.09.2025, the applicable GST rate should be 18%.

However, as the invoice was already issued on 20.09.2025 with 28% GST, the supplier must issue a credit note for the excess 10% GST charged, in order to rectify the overcharged tax and ensure compliance with the applicable rate as per the time of supply.

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CA Rajesh Kumar Khandelwal, 9818595050, RKCAMBALLB@GMAIL.COM, Date : 17.09.2025