As India Inc prepares to adopt the new GST rates, functions from sales and billing to inventory, accounts, compliance, and supply chain will be put to the test, with companies working to ensure a smooth transition without disrupting business continuity. From reconfiguring ERP (Enterprise Resource Planning) systems and updating thousands of SKUs (Stock Keeping Units) to navigating input tax credit reversals and potential anti-profiteering disputes, businesses across sectors may require a minimum of three months to fully adapt, experts warned.
While businesses have previously navigated major GST rate overhauls, during the initial rollout and in November 2017, the current changes are more nuanced and would require updating of invoicing, accounting, and ERP systems, noted Mahesh Jaising, Partner & Indirect Tax Leader, Deloitte India. In 2017, the GST council slashed GST rate from 28 percent to 18 percent for 178 goods. Following these changes, the 28 percent bracket was narrowed significantly, applying to only 50 luxury and sin items. For all restaurants, the GST rate was lowered from 18 percent to 5 percent, without the benefit of input tax credit (ITC).
On September 3, the GST Council confirmed its decision to bring down rate slabs to two — 5 percent and 18 percent, eliminating the 12 percent and 28 percent brackets, reducing prices of several items. The move was cheered by companies across the board, especially packaged food companies, who were the clear winners from the reforms.
However, rate transition is far more complex than simply updating a tax percentage, according to experts.
"Every ERP and billing system must be reconfigured at scale—updating product masters, tax codes, purchase orders, distributor portals, and invoicing modules simultaneously. For FMCG companies with thousands of SKUs across dairy, poultry, snacks, beverages, and personal care, this means mapping each item into the new tax slabs without error. The companies would have to ensure accuracy across millions of daily transactions while maintaining continuity in supply chain and compliance reporting," said Krishan Arora, Partner, Tax and India Investment Advisory leader, Grant Thornton Bharat.
Challenge for small shops, FMCG inventory
Meanwhile, the pain will be felt more amongst the end-retailers—especially smaller kirana stores. These small enterprises could face challenges in reconfiguring billing systems, updating rate charts, and adjusting stock already procured at the old rate, Arora flagged.
"While large-format retail chains can push updates centrally, smaller outlets may struggle, creating inconsistencies in consumer pricing and potential disputes in the supply chain. This may also lead to mismatches in GSTR-1 and GSTR-3B, delaying ITC claims and increasing reconciliation disputes," he said.
GSTR-1 and GSTR-3B are both monthly or quarterly GST return forms, but they serve different purposes. GSTR-1 is a detailed report of all outward supplies (sales), while GSTR-3B is a summary return for declaring and paying monthly tax liabilities.
“For FMCG players, the question is what to do with the inventory. The expectation is that customers will wait before making their purchases, thus postponing demand. Dealers will have to spend higher by way of working capital, with dealers in the auto sector typically keeping around 50 days of inventory in passenger vehicles now. There’s also a question of what to do with the cess that has already been paid by the dealers,” said Miren Lodha, senior director, CRISIL Intelligence.
Companies across the board must guard against invoicing errors, contract misalignments, and delays in passing on revised rates, all of which could disrupt business continuity, experts said.
"This won’t be a quick fix; it demands a thorough review and rigorous testing to ensure that each SKU falls under the correct rate without jeopardising compliance," said Archit Gupta Founder and CEO of Clear (previously known as ClearTax).
Issues with input tax credit
There is likely to be confusion around ITC claims, especially in sectors where GST rates have been cut to zero or 5 percent with no input tax credit allowed, according to experts.
"Businesses will need to carefully assess ITC eligibility on existing inventory and capital goods. The complexity arises from provisions that apply when output supplies become wholly exempt, leading to interpretational challenges," said Jaising.
Experts said that for some sectors, the time provided is relatively limited to adjust to the new rates, and may upend supply chains in the near term. For some categories of goods, especially white goods and daily use items, a mechanism and a window to seek input tax credit (ITC) may be needed for stockists.
“A relatively lower time has been given to stakeholders for the change in rates, and it can completely rejig supply chains. A lot of stocking happens at the dealer level for white goods and daily use items, and the higher rated stock also needs to be liquidated. The stakeholders need to find a way for the dealers to liquidate the stock and seek refunds through the input tax credit mechanism,” said Rajat Bose, partner, Shardul Amarchand Mangaldas.
Gupta flagged that post-sale discounts, credit notes, and rate adjustments will likely trigger ITC reversals.
"Businesses need to be extremely diligent in tracking claims to ensure they’re not left with excess credits or exposed to penalties for ineligible claims. Realistically, businesses will need a minimum of three months to fully adapt to the new GST system," he said.
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