Preparing Businesses for India's GST 2.0 Reforms: A Comprehensive Guide

For finance teams, a comprehensive GST readiness checklist is crucial for efficiently implementing and complying with the changes introduced by the GST 2.0 reforms. The 56th GST Council meeting, held on September 3, 2025, in New Delhi, unveiled these significant GST 2.0 reforms. Key decisions included introducing a two-tier GST rate structure of 5% and 18%, eliminating the 12% and 28% slabs, and establishing automated refund processes. Subsequently, the Central Board of Indirect Taxes and Customs (CBIC) issued notifications on September 17, 2025, detailing all GST rate adjustments, exemptions, and amendments to the Central Goods and Services Tax (CGST) Rules. While most rate changes and new regulations became effective from September 22, 2025, some were applied retrospectively from April 1, 2025, and others are slated for October 1, 2025.

Key Points:

• GST 2.0 simplifies tax slabs, making them easier to understand and thereby reducing classification disputes.
• Businesses must proactively adapt and comply by realigning their systems, compliance frameworks, and financial strategies.
• The introduction of digital compliance tools and the removal of the GST compensation cess aim to lower compliance costs and remove obstacles, fostering an environment for new ventures to start and expand more easily.

Understanding the Revised GST Slabs

GST 2.0 has introduced a rationalized and simplified structure for tax slabs. This rationalization involves merging the 12% and 18% rates into a single standard slab. Essential goods remain at a lower 5% tax slab. Luxury and 'sin' goods are subject to a higher rate of 28% along with an additional cess. Furthermore, special concessional rates have been introduced for Micro, Small, and Medium Enterprises (MSMEs) and for supporting the green economy. Future rate adjustments will be subject to periodic review. For detailed information on specific rates, a comparison of new versus old GST rates is available here.

Enterprise Preparedness Checklist

What preparations should businesses undertake in light of these changes? A primary focus should be on managing transitional supplies. With the imminent implementation of new tax rates, businesses must ensure that the correct GST rates are applied to all transactions that span across the effective date. It is important to note that, as per Section 14, when tax rates change, the time of supply (which determines the liability to pay GST) depends on three key events:

• The date the invoice is issued.
• The date payment is received.
• The date goods or services are supplied.

To determine which tax rate applies, businesses can use the following simplified logic:

• If two of these events occur after the rate change, the new tax rate applies.
• If two of these events occur before the rate change, the old tax rate applies.

System Updates

• Accounting and ERP Systems: Update these systems to reflect the new 5% and 18% GST slabs. Inventory databases must also be revised to incorporate the updated tax rates.
• Refund Process Enhancements: Effective November 1, 2025, exporters will be able to receive 90% provisional refunds based on risk assessment. Businesses should prepare for cases involving an inverted duty structure and note the removal of the threshold for tax-paid exports, which will particularly benefit small exporters.
• HSN Code Audits: Enterprises should conduct thorough HSN code audits for all products to ensure accurate classification under the revised tax structure. This involves cross-referencing with updated rate schedules and maintaining documentation to justify classifications, thereby preventing future disputes.

Compliance Adjustments

• Invoice Format Revisions: Businesses must ensure that all invoices generated on or after September 22, 2025, for subsequent supplies, adhere to the new formats.
• Transitional Supply Invoicing: Proper handling is required for transactions that bridge the effective date of rate changes, such as advance payments received before September 22 for supplies made afterward.
• Contract Renegotiations: Existing contracts with vendors, suppliers, and customers should be reviewed and potentially renegotiated to align with the new tax provisions, mitigating potential conflicts.
• Automated GST Registration: From November 1, 2025, an optional, simplified registration scheme will enable small, low-risk businesses, including those supplying via e-commerce platforms, to obtain GST registration automatically within three working days.

Business Operations Revisions

• MRP Updates: Businesses have the option to voluntarily update Maximum Retail Prices (MRPs) for stock manufactured before September 22, 2025, using stickers or online printing methods.
• Supply Chain Cost Management: Reduced GST rates on transportation, cement, and certain industrial inputs will influence logistics costs. Businesses should re-evaluate their overall supply chain expenditures to pass on savings and maintain a competitive edge.
• Resolution of Inverted Duty Structure (IDS): The reform addresses the persistent IDS problem in sectors like textiles and fertilizers. Manufacturers in these industries will experience improved cash flow as their raw materials now incur lower taxes.
• Handling Provisional Refunds: Exporters and businesses with an inverted duty structure can now claim provisional refunds for 90% of their eligible amounts, starting November 1, 2025, based on a risk assessment. This measure will significantly aid working capital management.

Financial Planning Considerations

• Cash Flow Management: Alterations in tax rates can impact the timing of tax payments and the availability of cash flow, necessitating meticulous cash flow planning.
• Consumer Behavior Impact: Businesses should assess how price adjustments resulting from the new GST rates will influence consumer demand and their overall sales performance.
• Government Initiatives: Staying informed about government programs related to tax exemptions and accelerated input tax credit refunds can assist businesses in navigating potential challenges.

Essential Transition Advice

1. If advance payments were received and GST was paid at the old rate before the rate change, and the actual supply occurs afterward, businesses must adjust their tax liability using credit notes.
2. In situations where prices are revised after a rate change, businesses need to promptly issue supplementary invoices or credit notes to reflect the updated GST treatment.
3. Should a supply become exempt from September 22, 2025, any Input Tax Credit (ITC) already available in the electronic credit ledger can be utilized for outward liabilities until October 21, 2025.
4. ITC attributable to exempt supplies must be reversed. However, if a supply becomes nil-rated, the available ITC can still be offset against GST liability for other taxable supplies.
5. Businesses are required to apply the new GST rates to all existing stock after September 22, 2025.
6. All e-way bills will remain valid after the new GST rates take effect; there will be no requirement for cancellation or regeneration of e-way bills for goods currently in transit.

Prime Minister Modi emphasized that these wide-ranging reforms will enhance the lives of citizens and simplify business operations for all, particularly small traders and enterprises.

By providing a streamlined tax framework with reduced costs for specific sectors, these reforms aim to stimulate the economy and simplify compliance for businesses.