GST 2.0: Products made and MRP labelled, here's how you will get benefits from Sept 22

A day after the central government announced a GST bonanza ahead of the festive season, offering sweeping tax cuts on nearly 400 goods and services, companies have begun the process of adjusting their prices for consumers to implement them by September 22.

The Goods and Services Tax (GST) Council has announced next-generation tax reforms as promised by Prime Minister Narendra Modi from the ramparts of Red Fort on Independence Day. The Council has approved the centre’s proposal to streamline the indirect tax structure into a dual slab of 5 per cent and 18 per cent.

The current four-tier tax structure, comprising 5 per cent, 12 per cent, 18 per cent, and 28 per cent, will be replaced by a simplified two-rate system. Under the new model, essential or “merit” goods will be taxed at a reduced rate of 5 per cent, while the majority of goods and services will be subject to a standard 18 per cent rate.

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How are companies working to pass the benefits?

Under the GST framework, tax is levied at various stages of production and distribution. Businesses can claim input tax credit (ITC) for the GST paid on their purchases. However, once the goods are manufactured and invoiced, the applicable GST rate becomes fixed, based on the rate in effect at the time of sale.

Therefore, products that have already been dispatched to dealers before the September 22 deadline will carry price tags with old tax rates. Adjusting these prices according to the new reforms would require coordination between manufacturers, distributors and retailers.

Naveen Malpani, partner and consumer industry leader at Grant Thornton Bharat, told TOI, “Trade promotions and schemes may need recalibration. Distributors might seek credit adjustments for inventory purchased at higher GST rates. Companies also need to update ERP systems, billing software, and point-of-sale terminals.”

He added that while large retail chains can adapt quickly due to their integrated technology platforms, smaller shops and traditional kirana retailers may struggle to update their systems promptly.

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How will it work across industries?

In the case of fast-moving consumer goods (FMCG), manufacturers are likely to increase the portion of the product rather than cut prices for fixed-price packs like biscuits or namkeens. Meanwhile, products like shampoos, soaps and toothpaste will carry new stickers with new tax rates.

Hotel rooms priced below Rs 7,500 per night will now attract 5 per cent GST, reduced from the earlier 12 per cent. However, this lower rate applies only to customers who choose to pay at check-in. If the room was paid for in advance, the service is considered rendered under the previous tax rate, even if the actual stay takes place after September 22.

Similarly, premium economy, business and first class flight tickets will now attract an 18 per cent GST, but tickets paid before September 22 will be under the old rates.

Meanwhile, some insurance companies are exploring value-added benefits, such as upgraded room eligibility or personal accident coverage, when renewing existing policies, rather than reducing premiums.