Overview of the New GST Structure (Effective 22 Sept 2025)

From the GST Council’s 56th meeting, large revisions were approved to simplify slabs, reduce tax burden on many goods & services, rationalise rates, and reorganise how certain high‑“sin” or luxury goods are taxed. 

Key structural changes:

• Reduced number of major GST slabs: essentially 5%, 18%, and a special 40% slab for sin/luxury goods.

  Items such as cigarettes, beedis etc. (“sin goods”) will retain existing GST + compensation cess until certain compensatory liabilities are cleared; then they will move into the new structure. 

What’s Changed: Goods & Services – Rate Shifts

Here are major changes relevant to suppliers:

Key Implications for Suppliers

Here are what suppliers need to keep in mind so that they remain compliant and optimise benefits:

1. Time of Supply, Invoice & Payment Dates Matter

   • If payment is received before 22 Sept, old rate applies, even if invoice is issued later. If payment/invoice both after the date, new rate applies. 

   • Suppliers must be careful about when they issue advance invoices or receive advances. Advances may be taxed partly under old and new slabs depending on timing. 

     ITC (Input Tax Credit) Considerations

2. • Where suppliers use ITC, especially if supplying B2B, they will prefer to stay / shift goods/services into slabs where ITC is available. Some services at 5% will be without ITC. This affects cost structure. 

   • Suppliers whose inputs are taxed at high rates (old) now may see lower output rates, which could improve the flow of credit. Conversely, if output rates drop but some inputs still taxed higher, care required in accounting.

3. Pricing / Contract Renegotiation

   • Suppliers will likely need to revise prices to reflect lower GST rates (when input cost savings are there), or account for higher rates (sin / luxury goods).

   • Existing contracts that fix prices including GST may need adjustment or addendums to reflect changed rate burdens.

4. Compliance Upgrades

   • Update billing / invoicing software, ERP, etc., to have correct HSN/SAC codes, correct rate logic (5%, 18%, 40%) so taxes collected correctly. Mistakes here can lead to mismatches, ITC issues for customers, or assessments. 

   • Return filing (GSTR‑1 etc.) must reflect new rates correctly. Any supplies straddling the cut‑over date need correct categorisation.

5. Refunds & Provisional Refunds in Special Situations

   • There is movement toward provisional refunds in certain cases (e.g. for zero‑rated supplies or supplies under inverted duty structure). Suppliers should check whether they are eligible, the documentation required, and whether new rules help speed up refunds. 

   • Impact on cash flows: reduced GST outgo on many supplies may ease working capital. But for some suppliers (luxury / sin goods), increased rates or delayed changes for their category can hurt.

6. Impact on Stock & Import

   • If goods are imported or bought before 22 September and in stock, those suppliers should understand how to reflect appropriate transition in valuation / IGST etc. Even though stock is older, the supply date matters. 

   • For imported goods, IGST will follow new rates for supplies after 22 Sept.

7. Special Categories to Watch Out

   • Tobacco, cigarettes, beedis, pan masala etc.: these remain under old GST + compensation cess until outstanding liabilities (loans, interest) under the compensation cess fund are cleared. Suppliers in these sectors need to keep an eye on notifications for when these transition. 

   • Sin/luxury goods: pricing and market demand may change, suppliers need to see if they move into higher slab or stay where they are.

Advantages & Challenges for Suppliers

Advantages:

• Reduced GST rates for many items → lower tax burden, which may improve margins or allow competitive pricing.

• Simplified rate structure (fewer slabs) will reduce classification disputes, reduce tax compliance complexity.

• For many suppliers, especially in FMCG, daily essentials, small appliances, etc., input cost savings can be passed on, improving demand.

• Suppliers not having to deal with multiple slab confusion or inconsistent rates over similar goods/services.

Challenges / Risks:

• Need for system upgrades (billing, accounting) and staff training to adapt to the new rates and slabs.

• Potential mismatch of ITC if output rate drops or ITC is restricted (for services taxed at 5% without credit).

• Transition issues – supplies / orders / payments spanning dates near 22 Sept may need careful handling.

• For products that moved up (luxury / sin goods), demand may fall, or price elasticity issues. Suppliers may face reduced volumes or need marketing adjustments.

• For goods still under old rates (tobacco etc.), the transition date is uncertain—suppliers need to plan but avoid assumption until official notifications.

Action Points for Suppliers

To be ready / compliant with the change, suppliers should ideally:

1. Audit their portfolio (goods & services) to classify each item under the new slab: is it 5%, 18%, or 40%?

2. Adjust invoicing systems, ERP, pricing schedules accordingly.

3. Review contracts and quotations made around Sept 2025 – ensure clauses allow for GST changes.

4. Plan cash flows considering whether higher or lower taxes will impact input costs or output pricing.

5. For suppliers in sin / luxury sectors, monitor when compensation cess liabilities clear for their specific goods (if applicable), as this determines when they switch to new regime.

6. Train accounting / sales teams on identifying whether services are eligible for ITC or not (especially those moving to 5% without credit).

7. Maintain documentation for supplies straddling the change date: payment receipts, advance invoices, delivery notes etc., to support correct rate application.