MAJOR GST UPDATE 2025 — WHAT YOU NEED TO KNOW (GST 2.0)

MAJOR GST UPDATE 2025 — WHAT YOU NEED TO KNOW (GST 2.0)

Starting 22 September 2025, India has rolled out sweeping changes to the Goods & Services Tax — popularly called GST 2.0 — following the 56th GST Council meeting. ([The Indian Express][1])

Below is a summary of what’s changed, and what businesses (and consumers) need to watch out for.

Key Changes & Highlights

1. Simplified rate structure.

• ·       The previous four main tax slabs (5%, 12%, 18%, 28%) have been rationalized into two primary rates — 5% and 18% — for most goods and services. ([Jagranjosh.com][2])
• ·       In addition, a new 40% rate is introduced for luxury / sin / ultra-premium goods. ([Jagranjosh.com][2])
• ·       Some items remain nil / exempt / special rates (e.g. in health, education, precious metals) ([Press Information Bureau][3])

2. Which items moved where?

• ·       Daily essentials, food, medicines, health care items, and some packaged goods have been moved to 5% or nil/zero rate in many cases. ([The Indian Express][1])
• ·       Consumer durables, electronics, household appliances, small cars, motorcycles (≤ 350 cc) etc. are now mostly taxed at 18% (down from 28%). ([The Indian Express][1])
• ·       Ultra-luxury and sin goods (e.g. high-end cars, tobacco products, carbonated drinks) now fall under 40% GST. ([Jagranjosh.com][2])
• ·       Precious metals, gems, jewelry often retain special rates (3%, 0.25%, etc.) as earlier. ([www.bajajfinserv.in][4])

3. Applicability & transitional rules.

• ·       The new rates apply to supplies, invoices, and payments made on or after 22 September 2025. ([Press Information Bureau][5])
• ·       If a supply was made before the date but payment or invoicing happens after, there are rules (time-of-supply) to determine whether the old or new rate applies. ([Jagranjosh.com][6])
• ·       Some exceptions or exclusions (e.g. “pan / tobacco / compensation cess” items) may continue under earlier structures until further notice. ([Press Information Bureau][3])

4. Other changes in formats / returns / compliance.

• ·       From February 2025, formats of GSTR-7 (TDS returns) and GSTR-8 (TCS returns by e-commerce operators) have been changed to require more invoice-level or document-level detail. ([IndiaFilings][7])
• ·       Certain anomalies (inverted duty structures) have been addressed, and rates are made more rational. ([ClearTax][8])
• ·       No significant change was recommended for the special composition scheme rates (except for “sand-lime bricks”, whose rate is reduced). ([The Indian Express][9])

5. Intended impact & government messaging.

• ·       The reforms aim to reduce compliance burden, rationalize tax structure, and pass benefits to consumers while ensuring revenue stability. ([Press Information Bureau][3])
• ·       The government has launched a “GST Savings Festival” to encourage businesses to pass rate cuts to consumers. ([The Indian Express][10])
• ·       Monitoring is underway to ensure e-commerce and retailers reflect the price cuts appropriately. ([The Indian Express][10])

Important shifts.

• ·       Consumer essentials, medicines, and daily goods get relief (now taxed at 5% or zero).
• ·       Electronics, household appliances, small cars, and motorcycles ≤ 350 cc move to 18%.
• ·       Premium goods, luxury cars, tobacco, carbonated drinks now taxed at 40%.
• ·       Precious metals & gems retain special lower rates (3%, 0.25%, etc.).

Transitional rules to keep in mind:

• ·       The “time of supply / invoicing / payment” rule will decide if the old rate or new rate applies in mixed-date scenarios.
• ·       Businesses must update pricing, billing systems, tax mapping, and software immediately.
• ·       Carefully review any advance payments or contracts straddling the change date.

Compliance & reporting changes:

• ·       New invoice-level detail is required in GSTR-7 and GSTR-8 returns.
• ·       Composition scheme largely remains unchanged, with select exceptions like bricks.
• ·       Businesses must reclassify goods/services under the new slabs.

What should your next steps be?

• ·       Audit your product / service SKUs and check how their GST rate changes (if any).
• ·       Update billing and accounting software with new HSN/SAC rate mappings.
• ·       Inform clients/customers about new rates and whether any price adjustments apply.
• ·       Watch notifications from CBIC and state governments for any clarifications or exceptions.
• ·       Ensure your finance / tax teams are trained in handling transitional cases, refunds, and reverse-charge implications.

Conclusion:

GST 2.0 is the biggest overhaul of India’s indirect tax regime in years. While it brings simplification and potential benefits to end consumers, the onus is on businesses to adapt swiftly — update systems, re-map products, and ensure compliance. At ActiveTaxPro, we’re here to guide you through this transition!