From 22 September 2025, GST 2.0 replaced the four main slabs (5%, 12%, 18% and 28%) with two main rates, a 5% merit rate and an 18% standard rate, plus a 40% special rate for a few luxury and sin goods. For distributors that meant new rates on item masters and price lists, a rule for goods billed across the changeover, credit notes that follow the original invoice's rate, and schemes to re-check.
What GST 2.0 actually changed
The 56th GST Council meeting recommended a "2 rate structure with a Standard Rate of 18% and a Merit Rate of 5%", with the 40% rate reserved for a select few goods and services. The new rates on services and on all goods apart from certain tobacco products took effect on 22 September 2025. Pan masala, gutkha, cigarettes, chewing tobacco, unmanufactured tobacco and bidi stayed at their existing GST and compensation cess rates, to move later on a notified date.
For most distributors, the change was a rate cut. These are some of the categories the Council release and the official FAQs name:
| Goods | Before 22 Sep 2025 | From 22 Sep 2025 |
|---|---|---|
| Hair oil, toilet soap bars, shampoos, toothpaste, toothbrushes | 12% or 18% | 5% |
| Packaged namkeen and bhujia, sauces, pasta, instant noodles, chocolates, coffee, cornflakes, butter, ghee | 12% or 18% | 5% |
| UHT milk, pre-packaged and labelled paneer | 5% | Nil |
| Bicycles and their parts | 12% | 5% |
| Air conditioners, dishwashers, TVs above 32 inches | 28% | 18% |
| Batteries under heading 8507 other than lithium-ion | 28% | 18% |
| Cement | 28% | 18% |
| Aerated waters with added sugar or flavouring | 28% plus compensation cess | 40% |
| Cigarettes, pan masala, chewing tobacco, bidi | Existing rate and cess | Unchanged until a later notified date |
The table is illustrative. Rates are notified by HSN code, and similar-sounding products can sit under different headings, so check the rate for each of your codes before you change a master. The 40% rate mostly absorbs the compensation cess that used to sit on top of 28%, so that, as the FAQs put it, the tax incidence on most of those goods is maintained rather than raised.
Price lists: one change, every customer group
A rate change reaches a distributor first as a price list problem. If your list prices are exclusive of GST, the base price can stay and the invoice total falls with the rate. If you quote tax-inclusive prices or trade against printed MRPs, each SKU needs a new decision on what the retailer or dealer actually pays.
Either way, the new price has to reach every customer group at once. When most of an FMCG portfolio is re-rated in one go, prices kept in several places (a spreadsheet for dealers, another for sub-dealers, the salesman's printed list, the accounting system) drift apart. Every order placed on one price and billed on another becomes a dispute.
This is the same discipline that dealer pricing control is about: set the price once, per customer group, and let every order pick it up. In ZunderFlow, each customer group has its own price list; you update it once and every customer's ordering app shows the new prices on their next order, with your sales team seeing the same numbers.
Supplies caught on either side of 22 September
Some goods were dispatched on 20 September and invoiced on the 23rd; some dealers paid in advance for goods delivered later. Section 14 of the CGST Act settles which rate applies by fixing the time of supply from three events: when the goods were supplied, when the invoice was issued and when payment was received.
| Goods supplied | Invoice issued | Payment received | Time of supply | Rate |
|---|---|---|---|---|
| Before | After | After | Invoice or payment date, whichever is earlier | New |
| Before | Before | After | Invoice date | Old |
| Before | After | Before | Payment date | Old |
| After | Before | After | Payment date | New |
| After | Before | Before | Invoice or payment date, whichever is earlier | Old |
| After | After | Before | Invoice date | New |
Source: section 14 of the CGST Act. A shorthand that fits every row: the rate follows the side of 22 September on which two of the three events fall. One detail matters for dealers who pay by bank transfer: if the money is credited to your bank account more than four working days after the rate change, the date of credit counts as the payment date.
In practice this means your accounting system has to be able to issue an invoice at the old rate for a supply that belongs before the change, even when the invoice is raised afterwards. The GST Invoice Generator keeps the old 12% and 28% rates in its list, marked old, for exactly this case.
Stock in hand and input tax credit
On 21 September, most distributors held stock bought at the old rates. Three answers from the official FAQs cover it:
- Stock sold after the change is taxed at the new rate. GST is levied on supply, so goods supplied on or after 22 September carry the new rate, whenever you bought them.
- Credit already in your ledger stays usable. Input tax credit duly taken at the higher rate can be used against any output tax, including tax on supplies at the lower rate.
- Accumulated credit on the same goods isn't an inverted-duty refund. If you bought at 12% and now sell the same goods at 5%, credit can pile up. The FAQs point to Circular 135/05/2020-GST: where the input and the output are the same goods taxed at different rates at different times, the refund for an inverted duty structure doesn't apply.
If a product became exempt, credit has to be reversed for its supplies from 22 September. And goods in transit didn't need new e-way bills: those generated before the change stay valid for their original period.
Returns and credit notes on old invoices
Take a dealer returning goods in October that were invoiced in August at 12%. A GST credit note adjusts the tax charged on the original invoice, so it carries that invoice's rate and references it, not the rate in force on the day of the return. The same goes for a rate or quantity correction on a pre-change invoice.
The trap in a manual workflow: a clerk raising the credit note in October picks the item's current rate by default, and the dealer's credit reversal no longer matches your output tax reduction. The fix is to raise credit notes from the original invoice, not from the item master, and to keep the order-to-invoice link that makes the original easy to find. That link is the subject of our guide to GST-ready dealer order management.
Dealer schemes and discounts across the changeover
GST 2.0 didn't change how schemes are taxed, but a scheme that spans 22 September touches invoices at two rates. The rules from Circular 92/11/2019-GST still apply:
| Scheme type | GST treatment | Across the changeover |
|---|---|---|
| Discount shown on the invoice | Reduces the taxable value; GST is charged on the discounted price | Nothing extra: each invoice carries its own rate |
| Post-sale scheme agreed before the sale and linked to invoices | Reduces the taxable value through a GST credit note; the dealer reverses the matching credit | Split the credit note by the invoices it relates to, each at the rate on that invoice |
| Discount decided after the sale | Settled with a financial credit note; the GST on the original invoices stays | No GST adjustment either side of the date |
A July–September target scheme is the typical case: most qualifying invoices are at the old rate, the last few days' at the new one. Our GST invoice guide covers the scheme rules in more detail, with the circular linked.
Schemes applied at order time are easier to get right than schemes worked out at quarter end, because the discount sits on the invoice and no credit note is needed. ZunderFlow applies the schemes for each customer group automatically when a dealer or retailer orders, so the discount is on the order before it becomes an invoice.
What to check if you haven't already
The changeover's after-effects still turn up in returns, scheme settlements and reconciliation:
- Item masters: every HSN code on the new rate, with the old rate still available for back-dated supplies.
- Price lists: one current list per customer group, in one place, with no printed or spreadsheet copies still in circulation.
- Credit notes: raised against the original invoice and its rate, never the current item rate.
- Scheme settlements: any scheme that ran across September 2025 split by invoice date before the GST credit note is issued.
- Credit ledger: any credit accumulated from pre-change stock reviewed with your chartered accountant.
How ZunderFlow fits
ZunderFlow doesn't issue tax invoices itself. Dealers and retailers order from your own branded app at their group's prices, with schemes applied and credit checked on every order. Confirmed orders are pushed to Tally, where invoices are created automatically, with stock, dealer balances, payments and credit and debit notes kept in sync. Zoho Inventory syncs items, customers, price lists and sales orders natively. The tax rate on each invoice comes from your accounting system; the price change is made once in ZunderFlow. See how it works for distributors.
Frequently asked questions
What are the GST rates after GST 2.0?
Two main rates, 5% and 18%, plus a special 40% rate for a few luxury and sin goods. Nil rates and exemptions continue. Certain tobacco products stayed at their old rates and compensation cess until a later notified date.
Which rate applies to goods dispatched before 22 September 2025 but invoiced after it?
It depends on when you were paid. If payment also came after 22 September, the new rate applies. If the dealer paid before 22 September, the old rate applies, because the payment date becomes the time of supply.
Can I still issue an invoice at 12% or 28%?
Only for a supply whose time of supply falls before 22 September 2025, such as goods supplied and paid for before the change but invoiced later. You can create one with the GST Invoice Generator, which keeps the old rates marked old, or use the GST invoice format.
Do I lose input tax credit on stock bought at the old, higher rate?
No. Credit already taken can be used against output tax at the new rates, but credit that builds up on the same goods doesn't qualify for an inverted-duty refund.
This article gives general information about GST 2.0 as it applies to distributors. It isn't tax, legal or accounting advice. GST rates and rules change through notifications and circulars, so check the linked official sources and confirm anything specific to your business, such as the rate for your HSN code or how a scheme is treated, with a chartered accountant or GST practitioner.
