The government is implementing significant Goods and Services Tax (GST) reforms, directing firms to update their systems and ensuring that the benefits of rate cuts reach consumers. These reforms, which take effect from September 22, 2025, aim to simplify the tax structure, reduce the tax burden on the common person, and boost economic growth.

Key Highlights of the GST Reforms:

• Simplified Tax Structure: The GST Council has approved a transition to a primarily two-slab structure of 5% and 18%, replacing the previous four-tier system. A higher rate of 40% will apply only to super luxury, sin, and demerit goods.
• Rate Reductions on Daily-Use Items: GST rates have been reduced on various daily-use items, including packaged food, medical items, and household goods. Some items like paneer, chhena, and ultra-high temperature milk are now tax-free.
• Tax Cuts on White Goods and Automobiles: GST on items like ACs, TVs, and dishwashers has been cut from 28% to 18%. Small cars and motorcycles under 350 cc are now taxed at 18%, while electric vehicles remain at 5%.
• Benefits for the Dairy Sector: Several dairy products, including paneer, chhena, and ultra-high temperature milk, are now exempt from GST. GST on dairy oils like butter, ghee, and cheese has been reduced from 12% to 5%.
• Easier Compliance: The reforms include simplified compliance norms, faster refunds, and quicker registrations. 90% of refunds will be processed within a stipulated time, and companies will be able to register within three days.

Government Directives and Monitoring:

The government is actively monitoring the implementation of these reforms, with all central ministries required to observe key areas such as price fluctuations, commodity shortages, software challenges, and trader grievances. Weekly reports are mandated to ensure a responsive and accountable GST implementation environment. The goal is to ensure that consumers are not adversely affected by price hikes and that essential goods remain available.

Ensuring Benefits Reach Consumers:

Union Minister Piyush Goyal has stated that the government will ensure that the benefits of GST rate cuts are passed on to consumers. Industries have reportedly assured their cooperation, and state governments are also expected to monitor the situation. Finance Minister Nirmala Sitharaman has emphasized that companies must pass on the benefits of lower GST rates to consumers.

Impact on Businesses and the Economy:

These reforms are expected to boost demand, drive volume growth, and deepen market penetration, particularly for daily essentials and segments like air conditioners and televisions. Consumer goods companies like HUL, Britannia, and Amul are already taking steps to reduce prices and increase grammage to pass on the benefits to consumers. Union Minister Ashwini Vaishnaw has stated that the reforms are aimed at boosting the Indian economy and will be implemented starting September 22. The GST reforms, combined with income tax relief, are expected to boost economic growth.

System Updates for Firms:

Businesses must update their accounting and billing systems to align with the new GST guidelines. E-invoicing will be mandatory for credit notes issued by registered businesses starting April 1, 2025. Businesses should reassess their aggregate turnover for FY 2024-25 to determine applicable compliance requirements for FY 2025-26.

Overall, the GST reforms aim to create a more efficient and equitable tax framework, benefiting both businesses and consumers. The government is committed to ensuring a smooth transition and that the intended benefits reach the common person.