India’s indirect tax framework is undergoing its most significant reform since GST’s introduction in 2017. To boost consumption, provide relief to consumers, and ensure ease of doing business, the GST Council, at its recently concluded 56th meeting, announced sweeping rate cuts and structural simplifications being positioned as GST 2.0. With the shift to a leaner rate structure and targeted sectoral reliefs, businesses have an opportunity to optimise costs, but compliance teams must act quickly since the compliance deadline is less than 3 weeks away. This blog will walk you through the GST 2.0 changes for businesses and their impact.

A Leaner GST Structure: New GST Slabs Explained

The Council has rationalized the four-tier GST structure into a two-slab system:

• 18% – applicable to Standard goods and services and
• 5% – merit rate applicable to essentials and mass-consumption items

In addition, a 40% de-merit rate will apply to luxury and sin goods such as tobacco, pan masala, aerated drinks, and high-end automobiles. This rationalization aims to reduce classification disputes and ease GST compliance.

What Gets Cheaper?

Several goods and services move to lower slabs or full exemptions, the notable ones are:

• Individual life and health insurance policies would now be fully exempt (down from 18%).
• Everyday use and essential FMCG products like hair oil, soaps, shampoos, toothpaste, packaged foods, biscuits, and kitchenware to be taxed at 5% (down from 12%/18%).
• UHT milk, paneer, certain breads, and critical medical supplies to be NIL-rated (down from 5%).
• Air conditioners, dishwashers, televisions, small cars (up to 1,200cc petrol/1,500cc diesel), cement, and motorcycles under 350cc will now attract 18% GST (down from 28%).
• Life-saving drugs and medicines are now NIL-rated (down from 5%/12%).
• Medical apparatus and devices used for medical, surgical, dental, veterinary, or analytical purposes are now taxed at 5% (down from 18%).
• Renewable energy devices and parts for their manufacture are now taxed at 5% (down from 12%).

What Gets Costlier?

• Luxury apparel & footwear priced above ₹2,500 now taxed at 18% (up from 12%).
• Tobacco, pan masala, gutkha, and aerated drinks will bear a 40% GST on retail sale price.

When Do the New GST Rates Apply?

The revised GST rates for goods and services will take effect from 22nd September 2025. However, the 40% GST applicable on pan masala, gutkha, cigarettes, unmanufactured tobacco, chewing tobacco, and related products come into force immediately in a phased manner on dates to be separately notified.

What businesses should prepare for?

Manage Transitional Supply

1. With the rate changes are stated to be implemented from September 22nd, businesses must apply correct GST rates on all transactions overlapping the effective date. It is important to note here that in terms of Section 14 of the CGST Act, 2017, in case of changes in tax rates, the time of supply i.e. date of determination of liability to pay GST depends on following events:

• • Date of invoice issuance,
  • Date of payment receipt and
  • Date of supply of goods/services.

The simplest way to understand which rate shall apply is to check the above dates and apply to following simplified logic:

• • If two of these events occur after the rate change – New tax rate applies.
  • If two of these events occur before the rate change – Old tax rate applies.

2. In case advances were received before the change and GST was paid at the old rate, if the supply occurs later, businesses need to adjust liability via credit notes.

3. In case there is price revisions post rate change, businesses need to issue supplementary invoices or credit notes promptly to reflect revised GST treatment.

4. If a supply becomes exempt from 22nd September, 2025, ITC already available in Electronics Credit ledger (ECL) can be used for outward liabilities till 21st Thereafter, ITC attributable to exempt supplies must be reversed. However, if a supply becomes NIL-rated, available ITC can still be used to offset GST liability on other taxable supplies.

5. For outward supplies made on or after 22nd September, businesses must apply the new GST rates on all existing stock.

6. E-way bills generated before 22nd September remain valid even after the new rates take effect; no cancellation or regeneration is required for goods in transit.

Update ERP and Billing Systems

Businesses should ensure the GST engines, POS systems, and invoicing workflows are configured to handle dual rates seamlessly until transitional supplies clear.

Review Contracts

Update ongoing contracts, work orders, and purchase orders to reflect revised tax terms and avoid disputes.

Communicate With Stakeholders

Inform vendors, distributors, customers, and internal teams about revised rates and billing rules to avoid non-compliance during the transition.

Document Anti-Profiteering Compliance

Where rates reduce, maintain pricing evidence to defend against regulatory scrutiny.

Other recommendations for navigating the GST compliance transition

Faster Refunds

Exporters and claimants under inverted duty structures will now get up to 90% provisional refunds automatically, using a system-driven risk model replacing the manual verification and speeds up working capital cycles.

Simplified Post-Sale Discounts

Under Section 34, credit notes can now be used to adjust post-sale discounts, even if they were not pre-agreed invoice-wise. This gives businesses more flexibility in structuring trade incentives without losing tax benefits.

Automated GST Registration

From 1st November 2025, a new optional simplified registration scheme will allow small and low-risk businesses, including suppliers via e-commerce operators to obtain GST registration within three working days, fully automated.

With GST 2.0 taking effect on 22nd September 2025, businesses have little time to prepare. Update systems, review contracts, train teams, and document pricing decisions now. Early action will ensure regulatory compliance, avoid disruptions, and position you to benefit from the simplified framework. A robust compliance management software like Komrisk can ensure early alerts, inform stakeholders if GST compliances not followed on time and mitigate legal and financial risks associated with non-compliance.

Get in touch with us if you want to get a demo of Komrisk.

Written by: Priyanka Agarwal

Co Authored by: Sourav Chaudhary

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