GST Rate Changes in India Effective September 2025: Tax Advisory for Foreign Investors

Posted by Written by Dezan Shira & Associates Reading Time: 7 minutes

India revises GST rates effective September 22, 2025. Key compliance changes for foreign investors include ITC rules, import taxes, refunds, and GSTAT reforms.

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The Ministry of Finance has released official FAQs following the 56th GST Council meeting, confirming revised GST rates and compliance clarifications. The changes come into effect from September 22, 2025 (except for tobacco-related products, which will be notified separately).

For foreign investors and multinational businesses operating in India, the updates carry significant implications for invoicing, imports, refunds, and compliance systems.

Also read: India’s GST Overhaul: What Goods Become Cheaper and What Gets Costlier

GST compliance highlights

The revised GST rates will take effect from September 22, 2025, with no changes to the existing registration thresholds under the CGST Act. The applicable tax rates will continue to be determined by the time of supply, which depends on the sequence of supply, invoicing, and payment.

Practical impact for businesses:

  • If invoice and payment occur after September 22 → new GST rate applies.
  • If payment received before September 22 → old rate applies, even with later invoicing.
  • Advances: Split between old and new rates depending on when payment is received.

This ensures tax liability strictly matches statutory timelines, minimizing scope for manipulation.

Input tax credit (ITC) and refunds

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GST refund and ITC optimization in India

Foreign companies must pay close attention to ITC utilization and refund eligibility. ITC will remain valid at the rate correctly charged on the purchase invoice, but it must be reversed if supplies become exempt after September 22. Refunds are not permitted solely on account of a rate change, and accumulated credit refunds under the inverted duty structure (IDS) are allowed only when input-output tax differentials are structural rather than time-based.

GST on imports and stock

From September 22, 2025, IGST on imports will follow the revised rates. Supplies made after the effective date will attract the new rates, regardless of when the stock was purchased. Importantly, there is no need to regenerate e-way bills, as existing bills remain valid during transit. For import-heavy businesses, these changes may directly affect cost structures and pricing strategies.

Institutional reform: GST Appellate Tribunal (GSTAT)

A major development for investors is the operationalization of the Goods and Services Tax Appellate Tribunal (GSTAT):

  • Operational from: End-September 2025 (appeals accepted)
  • Hearings commence: December 2025
  • Backlog appeals deadline: June 30, 2026
  • National Role: Principal Bench to serve as the National Appellate Authority for Advance Ruling

This strengthens India’s GST framework, offering greater dispute resolution certainty – a key factor for foreign investors managing tax risk.

Trade facilitation measures 

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  1. Risk-based provisional refunds for zero-rated supplies

To ease refund claims on exports and supplies to Special Economic Zones (SEZs), the GST Council has recommended amending Rule 91(2) of the CGST Rules, 2017. Under the revised rule, eligible businesses will receive 90 percent of their claimed refund as a provisional refund, subject to system-driven risk evaluation.

In exceptional cases, tax officers may bypass the provisional refund process and instead conduct a full scrutiny, with reasons recorded in writing. A notification will also be issued specifying categories of taxpayers who are not eligible for provisional refunds. This measure takes effect from November 1, 2025.

  1. Provisional refunds for inverted duty structure (IDS)

The Council has proposed extending the provisional refund mechanism to cases involving inverted duty structures (where input taxes exceed output taxes). Similar to the zero-rated supply framework, 90 percent of the refund will be sanctioned provisionally, based on system-led risk assessment.

Pending formal amendments to the CGST Act, the Central Board of Indirect Taxes and Customs (CBIC) will issue instructions to field formations to implement this system from November 1, 2025.

  1. GST refunds for low-value export consignments

An amendment to Section 54(14) of the CGST Act, 2017, has been recommended to remove the existing threshold limit for claiming refunds on exports made with tax payment. This change will especially benefit small exporters using courier or postal modes.

  1. Simplified GST registration scheme for small and low-risk businesses

To streamline registration, the Council has recommended an optional simplified GST registration scheme. Key features include:

  • Automated approval of registration within three working days for low-risk applicants.
  • Eligibility for businesses whose estimated monthly GST liability on supplies to registered customers does not exceed INR 250,000 (including CGST, SGST/UTGST, and IGST).
  • Flexibility to voluntarily opt in or opt out of the scheme.

The scheme is expected to cover around 96 percent of new GST applicants and will also take effect from November 1, 2025.

Sector-specific updates

  • Tobacco products: Pan masala, cigarettes, gutkha, and similar products will move to retail sale price (RSP)-based valuation under GST.

Advisory for foreign investors

Foreign businesses and investors should act quickly to align with these changes.

Lalitha Rao, Manager, Corporate Accounting Services at Dezan Shira & Associates notes: “It is important to review contracts and billing cycles to ensure compliance with time-of-supply rules and update import compliance systems to reflect the revised IGST rates. Companies should also reassess their ITC positions and prepare for reversals in cases where supplies become exempt. At the same time, they should plan for faster refunds under the new provisional refund framework and closely monitor the operationalization of the GSTAT for improved dispute resolution and greater certainty in advance rulings.”

Summary

The September 2025 GST reforms represent a significant step in India’s ongoing efforts to streamline its indirect tax regime, providing greater clarity, faster refund mechanisms, and stronger dispute resolution frameworks. While the changes enhance transparency and ease of doing business, they also demand proactive adjustments from foreign investors to safeguard compliance and optimize tax positions. For multinational companies, timely alignment with these rules – particularly around invoicing, ITC reversals, and refund processes – will be essential to mitigate risks and fully leverage India’s evolving tax landscape.

General compliance and invoicing: Discussion with our experts

Q1. When will the changes in GST rates come into force?

Effective September 22, 2025 (except tobacco & related products, which will be notified later).

Q2. Is there any change in threshold of the registration required for goods under CGST Act, 2017?

No change in registration threshold.

Q3. Which notification provides for the revised rates?

Rate changes will be notified by CBIC and published on its website.

Q4. What happens to the applicable rate of tax, if I had supplied goods/services or both before the changes in GST rates come into force but the invoices were issued later?

As per Section 14 (a)(i) of CGST Act, 2017; time of supply depends on invoice/payment date.

Scenario 1: Payment received after the rate change

  • If the supply was made earlier (before September 22, 2025), but you receive payment after the rate change and also issue the invoice later,
  • Then time of supply = whichever is earlier:
    • date of payment received; or
    • date of invoice issued.

Meaning: Even though supply was earlier, the GST liability will be calculated using the new rate (because both payment and invoice happened after the change).

Scenario 2: Payment received before the rate change

  • If the supply was made earlier, and payment was received before the rate change, but invoice was issued later,
  • Then time of supply = date of payment received.

Meaning: GST will be calculated using the old rate (because payment was already received under the old regime).

This provision ensures there is no revenue loss or manipulation when tax rates change.

  • If both invoice and payment happen after the change → new rate applies.
  • If payment happens before the change → old rate applies, even if invoice is delayed.

Q5. What would be the GST rate applicable if I have received advances for supply of goods/services or both, but supply has not been completed, or invoice is not issued?

Determined by time of supply (Section 14).

Time of supply decides when the GST liability arises. For rate change situations, the law looks at the sequence of:

  1. Date of supply
  2. Date of invoice
  3. Date of payment received

Case 1: Advance received before rate change

  • Suppose you received advance before September 22, 2025 (old rate period).
  • Even if supply is made after the rate change, the time of supply (for the advance portion) = date of payment (old rate).

Case 2: Advance received after rate change

  • Suppose advance is received after September 22, 2025.
  • Then, even if supply was contracted earlier, the GST rate applicable = new rate.

Case 3: Partial Advance before change, balance after change

  • Advance split across old & new rate periods.
  • GST has to be applied proportionately →
    • Portion of advance received before September 22, 2025 → old rate.
    • Portion of advance received after September 22, 2025 → new rate.

Q6. What will happen to the ITC for purchases made before changes in GST rates came into effect? Will I get ITC at reduced rate now?

  • ITC allowed at the rate prevailing on date of supply (if tax correctly charged).
  • ITC is based on the actual tax charged on the purchase invoice.
  • As long as the supplier has applied the correct rate at the time of supply, you can claim that credit.
  • You will not lose credit just because rates changed later.

Q7. What will be the impact on the IGST rate on import of goods?

IGST on imports will follow new rates (unless specifically exempted).

Q8. The GST rate has been reduced on my outward supply, but I already have ITC of higher rate. Can I continue to use such credit?

Yes, ITC already availed can be fully used for output tax liability.

Q9. My outward supply is exempt under new rate schedule. But I already have ITC of GST paid in my ledger. Will I need to reverse ITC?

You can use the ITC balance to pay GST only on supplies made up to September 21, 2025 (before exemption takes effect).

From September 22, 2025 onwards, if your supply becomes exempt, you must reverse the ITC related to those exempt supplies as per CGST Act, 2017.

Q10. Will I be allowed to take refund of accumulated credit arising out of inverted duty structure for supplies effected up to the date of effect of revised rate as notified?

No refund allowed merely due to rate change (refer Circular 135/05/2020-GST).

Refund of accumulated ITC under inverted duty structure (IDS) is allowed only when:

  • The GST rate on inputs is higher than the GST rate on outputs (finished goods/services).
  • But if the same goods are taxed at different rates at different times (old vs new rate), it does not qualify as inverted duty structure under Section 54(3).
  • Therefore, no refund of accumulated ITC is available in such cases.

Q11. If I already have stock on the date when rate changes come into effect, should I apply the revised rate?

Yes, revised rate applies on supplies made on or after effective date.

  • GST is a supply-based tax, not a stock-based tax.
  • This means → the rate applicable is decided on the date of supply, not on the date of purchase or stock availability.
  • Therefore, if you supply goods on or after the new rate becomes effective, the new rate will apply, even if the goods were purchased or manufactured earlier.

Q12. Will the e-way bills have to be cancelled and generated afresh on goods in transit when the new rates come into effect?

No; existing e-way bills remain valid.

  • As per Rule 138 of the CGST Rules, 2017, an e-way bill must be generated before the movement of goods begins.
  • There is no requirement to cancel and regenerate e-way bills if GST rates change while goods are already in transit.
  • E-way bills that are valid at the time of generation will remain valid for their entire validity period, even if a rate change occurs mid-transit.

Based on information released by the Press India Bureau.

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