GST 2.0 compliance: What businesses need to prepare for

With GST 2.0 set to take effect on September 22, businesses are gearing up for one of the most significant tax reforms in recent years. The new framework simplifies GST into three slabs: 5%, 18%, and 40%, lowers taxes on essentials and insurance, and increases rates on luxury and sin goods.

While GST 2.0 is designed to make taxes simpler and help consumers, businesses need to quickly update pricing, software, contracts, and inventory to keep operations running smoothly and avoid problems.

Impact on businesses

GST rate changes directly affect pricing strategies, Input Tax Credit (ITC) calculations, and overall profitability. While consumers may benefit from lower costs, businesses face operational challenges, including updating systems, managing stock, and ensuring compliance across multiple channels.

Challenges for businesses

System and software updates

ERP, billing, and accounting software must be updated to reflect new rates. Delays could lead to errors, penalties, or mismatched filings.

Pricing and label adjustments

Retailers and FMCG companies need to revise thousands of SKUs to reflect new GST slabs.

MRP changes

The Ministry of Consumer Affairs permits revised MRPs on unsold stock from 22 September until 31 December or until stock is sold. Updates can be made via stamping, stickers, or online printing.

Provisions include:

Original MRP must remain visible; revised MRP cannot overwrite it.
Increases cannot exceed the tax difference; reductions must benefit consumers.
Mandatory notices through newspapers, dealers, and Legal Metrology authorities.

Inventory management

Selling goods purchased under old rates may cause valuation and ITC complications. Maintaining clear audit trails is critical.

Cash flow pressures

Sudden changes in ITC eligibility or rates can strain liquidity, particularly for MSMEs.

Contractual and legal implications

Long-term contracts without tax variation clauses may need revision to avoid revenue losses or disputes.

Employee training

Finance, sales, and operations teams must understand revised rates to prevent errors in invoicing and compliance.

What businesses can do

To ensure smooth GST 2.0 compliance, businesses should:

Monitor notifications: Keep track of CBIC and GSTN updates for key dates and procedural changes.
Update IT systems: Ensure invoicing and accounting tools are configured before implementation.
Reconcile ITC: Conduct thorough checks during the transition to prevent mismatches.
Revise contracts: Include flexibility for tax variation scenarios in vendor and customer agreements.
Communicate changes: Inform suppliers, clients, and internal teams about pricing updates.
Seek professional support: Leverage CAs and tax consultants for financial impact analysis, forecasting, and filing strategies.
Train teams: Educate staff regularly to reduce compliance-related errors.

GST rate changes follow a clear process. The Fitment Committee reviews current rates and suggests updates, which the GST Council approves. The CBIC then issues official notifications with the effective dates. Unless said otherwise, new rates come into effect from the date they are published in the Gazette, giving businesses a clear timeline to implement them.