It aims to generate substantial economic benefits by addressing inverted tax structures, thereby unlocking working capital, boosting manufacturing competitiveness, and supporting the vision of Atmanirbhar Bharat. The current GST reforms require businesses to go beyond reactive compliance. Whether they are managing pricing adjustments, navigating anti-profiteering rules, or aligning with broader policy objectives, organisations must act with clarity and agility in these key areas:
Assessing Pricing Impact
The Group of Ministers (GoM) on GST rate rationalisation has reportedly accepted the central government’s proposal to simplify the existing four-rate slab system to just two. Notably, approximately 99% of goods currently taxed at 12% are likely to shift to a lower 5% slab, resulting in significant price corrections across a broad range of consumer products in sectors such as chemicals, pharmaceuticals, construction material, and consumables. This change compels businesses to revise product pricing, including MRPs. Companies will need to determine whether to fully pass on the GST rate reduction to consumers or partially offset it by factoring in increased costs from raw materials and overheads amid a volatile market. This is crucial, given the possible revival of anti-profiteering provisions with an intent to transparently pass on the benefits of rate reduction to the consumers.
The potential occurrence of tax inversion is a critical evaluation for businesses, as GST rates on procured services largely remain at 18%, while the output goods are shifted to the 5% slab. While refunds for differential tax on goods (excluding capital goods) are allowed under the inverted duty structure, the refund available for services is minimal under current provisions. Since input services and capital goods are excluded from refund eligibility, a substantial amount of input tax credit accumulates, affecting working capital and ultimately impacting margins or pricing over the long term. Moreover, the inverted duty refund spread is now 13% (5% less 18%) as against the present spread of 6% (5% less 18%), and the time for receiving the refund for goods is significant. This raises an important question: should businesses factor the tax and working capital cost due to duty inversion into their revised product pricing, or is there an expectation to pass on the full benefit of the rate reduction to consumers? The services sector may face an even greater challenge, particularly if GST rates on output services drop to 5% or become completely exempt.
Inventory and pricing revision
For businesses dealing with pre-packaged goods with MRPs, such as FMCG, pharmaceutical and healthcare, and consumer durables, a key challenge is revising the pricing of unsold inventory as of the effective date and ensuring transparent transmission of reduced prices to the consumers. Since unsold stock can be stored at multiple points in the supply chain—own warehouses, distributors, dealers, and retailers—guidance from the Ministry of Consumer Affairs is anticipated to facilitate a smooth transition following the GST rate change.Historically, when GST was introduced in July 2017, the Ministry of Consumer Affairs, Food and Public Distribution (Legal Metrology Division) issued guidelines on relabelling MRPs for unsold pre-packaged goods as of the implementation date. Manufacturers, packers, or importers were allowed to declare revised MRPs by stamping, stickers, or online printing, provided the original MRP remained visible, and the revised price did not exceed the tax increase. Packaging materials that were not used before July 1, 2017, could still be used after appropriate MRP corrections.Anti-profiteering
With the expected rate reductions, anti-profiteering provisions have come under renewed attention. Section 171 of the CGST Act requires that any GST rate cuts or increased input tax credits be passed on to consumers through price reductions. However, the government has set April 1, 2025, as the cut-off date for new anti-profiteering complaints, signalling a move toward market-driven pricing. Businesses must maintain transparency in communicating price changes to customers and ensure pricing revisions are justified and well-documented. Given the possibility of these provisions being reactivated, it is critical that revised prices are supported by thorough documentation and aligned with precedents set by the National Anti-Profiteering Authority and judicial rulings.
Changes in ERP and POS Systems and price communication
Businesses must ensure that their accounting, billing, and ERP systems are promptly updated to accommodate the new GST structure accurately from the effective date. This includes retail management systems and point-of-sale billing software. Early coordination with ERP vendors is essential, as system updates can be time-consuming. Revised prices should also be reflected consistently across all sales channels—including advertisements, brochures, e-commerce platforms, mobile apps, kiosks, physical stores, and websites—from day one.
Conclusion
As GST embarks on this new chapter, businesses bear the responsibility for ensuring a smooth, efficient, and transparent transition. Only through proactive planning and transparent communication can businesses fully leverage these reforms and drive growth in the new GST era.
Hardik Gandhi and Shilpy Chaturvedi are Partners at Deloitte Touche Tohmatsu India LLP, and Dhwani Gada, Director, Deloitte Touche Tohmatsu India LLP. Views are personal.
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