Key Takeaways to Transitioning GST Rate Changes Effective September 22, 2025

This presentation outlines the key considerations and implications of the Goods and Services Tax (GST) rate changes effective September 22, 2025, for businesses. The objective is to ensure a smooth transition, compliance, and accurate financial reporting.

Time of Supply: Navigating Advance Receipts, Invoicing, and Supply

The ‘Time of Supply’ is a crucial determinant for applying the correct GST rate. Understanding its nuances is vital for accurate invoicing and tax liability.

Key Scenarios and Implications:

E-Way Bill Preparation with Rate Change

When an invoice is issued before the rate change and goods are supplied after the rate change, careful attention is required for E-Way bill preparation.

Invoice Issued Before Rate Change, Goods Supplied After Rate Change:

• The E-Way bill should be prepared based on the details of the invoice issued.
• However, the value declared on the E-Way bill should reflect the taxable value of the goods.
• Crucially, the GST rate declared on the E-Way bill must correspond to the rate applicable at the time of supply as determined

This mismatch between the invoice rate and the E-Way bill rate needs to be reconciled.

Status of Credits on Hand (Stock)

When GST rates change, the treatment of input tax credit (ITC) on existing stock is a critical consideration.

• If the GST rate on a product increases, ITC available on the stock purchased at the old, lower rate will be utilized for the output tax liability at the new, higher rate, provided all other conditions for ITC are met. No Restriction on use of ITC.
• If the GST rate on a product decreases, the ITC available on stock purchased at the old, higher rate will be based on that higher rate. However, when selling the stock under the new, lower rate, the output tax liability will be calculated at the reduced rate. Here ITC shall be available and can be utilised for the future supply of goods or services.

ITC for Stock on Hand and Capital Goods – Shift to NIL Rate or GST without ITC

The transition of goods to a NIL GST rate or to GST without the benefit of input tax credit requires specific treatment for existing stocks and Capital Goods.

ITC for Stocks on Hand:

If goods are moved to a NIL GST rate category, any ITC already availed on the purchase of such goods must be reversed. This is typically done by paying the equivalent amount of ITC as output tax.

Need to ensure proper stock on hand is calculated as on 22^nd September,2025 and accordingly reversal is done for ITC

ITC for Capital Goods on Hand:

If GST Rate is shift to NIL Rate Capital Goods used for such supplies or commonly use for such supplies will have impact on claim of ITC. If any ITC availed on their purchase must be reversed proportionately considering 60 Months useful life of Asset. Meaning thereby is asset is purchased on 1^st July,2024 than its used for the 15 Months, accordingly proportionate ITC on such fixed asset require to reverse. Thus reversal shall be proportionate to the remaining useful life of the asset.

Credit Notes Issued On or After Rate Change

The issuance of credit notes is subject to specific rules when related to supplies made before a rate change.

Rule:

A credit note issued on or after September 22, 2025, pertaining to a supply made before September 22, 2025, should reflect the GST rate applicable at the time of the original supply.

Implication:

If the original supply was taxed at the old rate, the credit note should also be issued under the old rate. The supplier would then be eligible to reduce their output tax liability by the amount of GST reflected in the credit note.

Example:

If goods were sold on August 15, 2025, at 18% GST, and a credit note is issued on October 10, 2025, due to return of goods, the credit note must be issued reflecting 18% GST.

Maintain continuity in tax documents to ensure correct GST adjustments

Ensuring Proper Margin on GST Rate Reduction

When GST rates are reduced, it’s crucial to ensure that the benefit of this reduction is passed on to the end consumer and not absorbed by the supply chain.

Documentation to Ensure Margin Passing:

Comparative Pricing:

Maintain records of pricing before and after the rate change. This includes original invoices, revised invoices (if applicable), and any price lists or promotional materials.

Cost Sheets:

Document the cost of goods, including the previous GST impact, and the new cost after the GST reduction.

Agreements:

Ensure contractual agreements with customers and suppliers clearly outline how price adjustments will be made in response to GST rate changes.

Internal Communication:

Document internal communication regarding price revisions and the decision-making process for passing on the benefit to dealers / distributors / agents

Consumer-Facing Communication:

If applicable, retain copies of advertisements or disclaimers that inform consumers about reduced prices due to GST rate changes. Thought it’s not mandatory as per the latest instructions but if any done including digital advertisement than same should be kept as record

Stock Records:

Detailed records of stock valuation before and after the rate change, reflecting the reduced tax component.

Impact on Continuous Supply of Goods & Services:

In case of continuous supply of goods and service supply effecting after 22^nd September,2025 shall have new rate implications and accordingly documentation should be done

Impact on Tender / Government Contract:

Need to revisit the contracts and tenders to ensure GST Effect if any is factored to ensure no undue benefit of GST rate reduction is taken and if there is any additional GST Liability same is passed on

Norms for MRP and Intimation for Rate Changes

Changes in GST rates can impact the Maximum Retail Price (MRP) of pre-packaged commodities. This is only applicable for Manufacturers, Packers and Importers.

Requirement for MRP Revision:

• If the reduction in GST rate leads to a lower ultimate selling price, the MRP on the packaging must be revised accordingly.
• Manufacturers and importers are obligated to ensure that the retail sale price does not exceed the revised MRP.

Intimation Requirements:

Its mandatory requirement for pre-intimation for declarations or submissions related to revised MRPs due to GST rate changes to Director, Legal Metrology (Central Government) / Controller of Legal Metrology (State Department):

Use of Old Packaging Material Until March 31, 2026 or utilisation of material purchased on or before 22^nd September whichever is earlier

To mitigate the financial impact of discarding old packaging, a transitional provision is provided.

Businesses are allowed to use old packaging material (printed with old MRPs or tax details) until 31^st March,2026.

• While using old packaging, businesses must ensure that the actual selling price reflects the correct tax liability and the benefit of any rate reduction.
• This means that even if the packaging shows an older MRP, the point-of-sale system and invoicing must reflect the correct, potentially lower, price and GST.

• Stickers or Labels: However its not mandatory, where the MRP needs to be changed due to a GST rate reduction or GST Rate increase, the use of stickers or labels can be done to indicate the revised retail sale price/

Refund in Case of Inverted Duty Structure Due to Rate Revision

An inverted duty structure occurs when the tax rate on inputs is higher than the tax rate on the final output. A revision in GST rates can sometimes create or exacerbate this situation.

• If a revision in GST rates results in an inverted duty structure, taxpayers shall be eligible for a refund of unutilized input tax credit as per the prescribed formula.
• As per the proposal of the GST Council provisional refund rules are also recommended to avoid any working capital blockage for longer time period for such industries so a close consideration is required towards it

Practical Checklist for smooth transition

• Before rate change:

• • Identify all affected SKUs, suppliers, and customers
  • Map different applicable scenarios and prepare transitional pricing
  • Update ERP to track rate-based stock and ITC

• At change date:

• • Validate invoices, E-Way Bills, and stock valuations
  • Generate adjustment notes if required
  • Communicate changes to sales/operating teams / dealers/ distributors and customers

• After change:
  • Monitor inverted duty risk and refunds
  • Maintain comprehensive documentation for audits

Conclusion:

Navigating GST rate changes requires proactive planning and a thorough understanding of the legal provisions.