Repercussions of GST Amendments on Wholesalers and Retailers

The revised Goods and Services Tax (GST) rates, implemented in 2025, have significantly influenced wholesalers and retailers. These adjustments, part of the GST 2.0 rate reset, aim to foster business expansion through tax reductions that lead to lower consumer prices. This article delves into how these GST changes have impacted both sectors.

Key Updates: The GST 2.0 rate reset, effective from September 22, 2025, following recommendations from the 56th GST Council meeting, includes:

• Numerous Fast-Moving Consumer Goods (FMCG) items were reclassified from 12% to 5% or zero tax.
• GST on small cars decreased from 28% to 18%. Large cars now face an overall effective GST of 40%, down from 50%.
• GST for Pan Masala, Gutkha, Cigarettes, and Tobacco is now calculated on the Retail Sale Price (RSP) instead of transaction value.
• GST on unmixed medicaments (not in retail packs) was reduced from 12% to 5%.
• Medicaments in measured doses or retail packs also saw a reduction from 12% to 5%.
• Ayurvedic, Unani, Siddha, Homoeopathic, and Bio-chemic medicines are now subject to a reduced GST slab of 5%.
• Medical dressings like wadding, gauze, bandages, and adhesive plasters had their GST lowered from 12% to 5%.
• Sewing thread made of artificial filaments experienced a GST reduction from 12% to 5%.

Understanding the GST 2.0 Rate Restructuring

The GST 2.0 rate reset, active since September 22, 2025, reorganized tax slabs by eliminating the 12% and 28% categories. This reclassification moved many FMCG products and medicines into lower tax brackets. Additionally, the effective GST on large vehicles was reduced from 50% (28% plus cess) to 40% (with no cess).

Since its inception in 2017, the Goods and Services Tax Act has undergone limited significant revisions. However, the recent 56th GST Council meeting and subsequent notifications from the Central Board of Indirect Taxes and Customs (CBIC) have specifically benefited wholesalers and retailers by addressing various industry-specific requests.

Here are the immediate actions and long-term implications of this GST rate overhaul for wholesalers and retailers:

• Businesses must recalculate margins and adjust pricing due to the new rate structure.
• For FMCG items, grammage-based pass-throughs are required at specific price points (e.g., Rs. 5, 10, or 20 packs), necessitating synchronized updates to MRP, shelf prices, and scheme offerings across the trade.
• Dealers holding inventory purchased at previous, higher rates might experience a delayed impact on consumer price benefits.
• Strict adherence to credit-note procedures and invoice linking is crucial for maintaining the flow of Input Tax Credit (ITC).
• Companies should plan a phased de-stocking before the effective dates and rapid re-stocking post-reset, along with re-stickering efforts.
• Clear documentation of rate-difference adjustments is essential to prevent potential disputes.
• All Stock Keeping Units (SKUs) require re-mapping of HSN codes and GST rates within ERP and Point-of-Sale (POS) systems.
• Delivery challans must be correctly linked to their respective invoices, and daily exception reports should be run for any unbilled dispatches.
• The GST 2.0 rate reset fosters more predictable pricing structures, annual trade terms, and SKU rationalization across product categories over multi-year periods.
• This initiative supports increased formalization within the trade sector.
• Wholesalers can consolidate their networks, renegotiate more favorable logistics terms, and explore new markets for sales expansion.
• After the initial transition phase, including litigation over reclassification, the overheads associated with relabeling and repricing will decrease.

Impact on Wholesalers

The continuity of Input Tax Credit (ITC) facilitates a tax-neutral Business-to-Business (B2B) pass-through. This helps reduce cascading taxes and protect narrow margins, provided purchase and sales invoices are accurately matched and submitted.

GST has imposed greater compliance rigor on wholesalers, requiring real-time invoice reporting, precise HSN/rate mapping for extensive SKU catalogs, and strict credit-note linkage to ensure downstream partners remain eligible for ITC.

The push for formalization has intensified as invoice-level traceability restricts cash-based or unnumbered transactions. This limits opportunities for tax evasion and brings more wholesalers into the tax system.

Working capital is dependent on the flow and accuracy of ITC and refunds. Errors or non-compliance by suppliers can impede ITC, causing cash flow problems, particularly in categories characterized by high transaction volume and low profit margins.

Impact on Retailers

Input Tax Credit (ITC) offsets on purchases reduce the embedded tax within the cost of goods, helping to stabilize gross margins. This is contingent on suppliers issuing compliant invoices and returns being reconciled correctly.

A reduction in inter-state tax differences creates a more equitable competitive environment across various locations. This shifts the focus of competition towards product assortment, customer service, and availability, rather than price discrepancies driven by taxation.

Retailers must enhance their record-keeping and audit readiness, including ensuring invoice accuracy at the point of sale, proper mapping within POS/ERP systems, and maintaining documentary evidence for discounts, returns, and warranty claims.

Managing marketplace Tax Collected at Source (TCS) reconciliations, timing variances, and return matching adds to the operational burden, especially when compared to solely offline operations.

Influence During Demonetisation

During the period of demonetisation, wholesalers and retailers experienced considerable distress. Many were compelled to de-stock inventory and reduce the volume of goods. This de-stocking primarily resulted from a significant decline in consumer demand. According to a Care Ratings report from March 15, 2017, sales for some FMCG companies in Q3 FY17 saw a decline of over 44% compared to Q3 FY16.

Though the decrease in consumer demand was limited, several Fast-Moving Consumer Goods (FMCG) companies noted that sales were severely affected due to insufficient stock availability at the retail level.