Effective 1 October 2025, the Indian indirect tax regime enters a transformative phase under what is being referred to as GST 2.0. These reforms have been designed to simplify tax rates, tighten compliance, and improve transparency in the flow of input tax credit (ITC). This article covers the key reforms, their implications, and recommended action steps for taxpayers.

GST 2.0 is a two-pronged reform package: (a) GST rate rationalization to simplify slabs and reduce inverted duty issues, and (b) procedural upgrades to tighten and validate input tax credit (ITC) claims.

GST changes from October 2025 mark the start of a new compliance era bringing significant procedural shifts that redefine how businesses manage their GST filing and ITC processes.

1. Why the Reforms? Context & Rationale

Over time, the existing GST framework accumulated complexity, multiple slabs, numerous exemptions, frequent rate changes, and challenges like inverted duty structures (where input tax exceeds output tax). To address this, the GST Council approved a package of changes (rate rationalization, procedural shifts, compliance-mechanism upgrades) which together form GST 2.0.

2. What changed in the rate structure?

Key rate highlights:

• The primary slabs were simplified to 0%, 5%, 18%, with a 40% slab for notified luxury/sin goods. The special 3% rate for gold/precious metals remains.
• Many items previously at 12% were moved to 5%; many from 28% were realigned to 18% or placed in 40% (for demerit goods).
  Note: several rate changes were made effective in late September 2025, procedural measures followed from 1 October. Expect relief on essentials and higher incidence on luxury goods.

3. The big procedural changes (effective 1 Oct 2025)

3.1 Invoice Management System (IMS) | Recipient validation of invoices

Recipients must Accept / Reject / Mark Pending each supplier invoice in the portal before ITC can be claimed in GSTR-3B. Sending comments to supplier like reason for rejection or keeping invoice as pending. Automatic credit population was withdrawn; recipients now have to proactively validate inward supplies and reconcile them each tax period. Time limits apply (monthly filers: within one month; quarterly filers: within the quarter). This shifts responsibility for ITC validation firmly onto recipients.

• The automatic credit population is withdrawn. Now Recipients must Accept / Reject / Mark Pending each supplier invoice in the portal before claiming ITC in GSTR-3B. Time limits apply (monthly filers: within one month; quarterly filers: within the quarter). This shifts responsibility for ITC validation firmly onto recipients.
• Recipients can now write comments and send the same to supplier. This would help in cases where a document is rejected or kept as pending. Supplier will get to know the exact reason behind the same. Supplier can accordingly act on it

3.2 Pre-deposit for penalty-only appeals

Appeals against orders that impose only a penalty (no tax demand) require a 10% pre-deposit of the penalty to proceed with a move designed to discourage frivolous appeals.

3.3 Track & Trace / Unique Identification Marking (UIM) for notified goods

A track-and-trace mechanism using Unique Identification Marking is introduced for certain notified goods (e.g., some sin goods and scrap), and misuse or diversion can trigger ITC reversal and penalties.

4. Practical impact for businesses

• Operational burden: Businesses must update ERP/GST software to integrate IMS workflows and implement invoice-accept/reject controls.
• Cash-flow risks: Delays or rejections in ITC acceptance can affect cash flows. Plan liquidity buffers.
• Controls & training: Procurement, accounting and tax teams must be trained to handle invoice validation and reconciliation.
• Supplier coordination: Communicate new timelines and formats to suppliers so GSTR-1/IFF filings align and mismatches are minimized.

5. Recommended Action Plan for Taxpayers

To navigate GST 2.0 effectively, businesses should adopt a proactive compliance posture. Below is a suggested checklist:

• Upgrade Software & Systems – Ensure your GST accounting / ERP software supports IMS workflows, permits invoice-accept/reject/pending marking, and aligns with GSTR-2B/3B changes.
• Train Personnel – Tax, procurement, accounts and IT teams must be aware of the new invoice-validation process, timelines, and implications of delayed or incorrect actions.
• Reconcile Past Invoices – Compare your purchase ledger with supplier invoices and rectify mismatches before they become unclaimable credits.
• Monitor Invoice-Wise Actions – Set internal controls so every invoice is either accepted, rejected or flagged pending in IMS within the relevant time period (monthly or quarterly).
• Communicate with Suppliers – Inform suppliers about the changes (GSTR-1, IFF, credit note linkage, etc) so that their declarations align and do not create downstream mismatches.
• Review Credit Note Policies & Reversal Mechanisms – Ensure your organization and your suppliers are compliant with the new rule requiring ITC reversal by the recipient before supplier liability reduction.
• Cash-Flow Planning – Owing to possible delays in credit recognition, maintain buffer liquidity and assess payment/credit cycles accordingly.
• Stay Updated with Regulatory Guidance – The GST N Network (GSTN) and the Central Board of Indirect Taxes & Customs (CBIC) are issuing advisories and FAQs monitor for clarifications, transitional guidelines and amendments.
• Seek Professional Advice – In complex cases (exports, SEZ units, long supply chains, multiple credit notes), consult a GST specialist or tax advisor to assess specific impacts.

GST 2.0 is more than just a rate adjustment, it represents a behavioural and systems transformation for businesses. Rates were simplified, but the real operational shift began with the GST changes from October 2025, when recipients became responsible for validating invoices and ensuring credit eligibility. Early system upgrades, disciplined reconciliation, and strong supplier coordination will help businesses adapt smoothly and reduce compliance friction under the new regime.

Streamline your GST Compliance with IRIS GST Software’s enhanced IMS integration

• Bulk Mode Filing for GSTR-1: Work for multiple GSTINs in one go. Designed to drastically enhance your efficiency and simplify return filing across entities.
• Smarter Reconciliation with Fuzzy Logic: New fuzzy matching capabilities intelligently matches invoices with varied formats, reducing mismatches and manual intervention. Enjoy faster, more accurate GSTR-2A/2B/IMS reconciliation.
• Proactive GSTR-2B Impact Flags: Easily identify which invoices in IMS will affect your upcoming GSTR-2B. With the “Current Month 2B?” flag, focus only on actionable items and reduce ITC loss due to delayed follow-ups.
• Auto-Generated HSN Summary & Document Details: Stay compliant with Phase III mandates. IRIS GST Software auto-generates the HSN Summary and Document Details from uploaded invoice data thus saving time and ensuring accuracy.
• GSTR-1A Amendments Made Easy: With Upcoming GSTR-3B now hard-locked, IRIS GST enables seamless invoice correction via GSTR-1A. Review recipient rejections, amend returns, and avoid interest or penalties, all from one platform.
• Vendor-Level Risk Insights: Spot high-risk vendors instantly using compliance scores and ITC risk indicators. Drill down into filing frequency, cancellation status, and e-invoice applicability to safeguard your ITC.