Latest GST Updates from Oct1

Latest GST Updates from Oct1

The October 2025 GST Council session, followed by a cluster of CBIC notifications and circulars, has recalibrated GST compliance for FY 2026-27 in three decisive ways: GSTR-2B is now the sole and absolute gate for input tax credit (ITC) eligibility; e-invoicing has been extended further down the turnover ladder with stricter IRN-before-dispatch enforcement; and Section 128A offers a limited amnesty window on interest and penalty for non-fraud demands covering FY 2017-18 to FY 2019-20. Miss these updates and you risk permanent ITC loss, late-fee accumulation, and avoidable tribunal litigation.

The October 2025 GST Council Decisions: What Actually Changed

The Council's decisions from the October 2025 session and the notifications that followed it affect businesses across sectors. Here are the changes with direct operational implications:

• Textile rate alignment: Certain categories of man-made fibre textiles moved from 5% to 12%, aligning with downstream garment products and ending the classification disputes at the yarn-to-fabric-to-garment chain. If you bill textile inputs, re-check your rate before the next invoice run.
• Insurance premiums: Term life and individual health insurance premiums saw a rate reduction as notified under the latest CBIC circular — the exact rate is circular-specific and may vary by product type; do not assume a flat number without verifying the relevant notification.
• Online gaming: The 28% rate on actionable claims in online gaming is confirmed post-Supreme Court validation and will not be rolled back. Platforms must continue to apply it to the full contest entry amount, not the net rake.
• Restaurant services in hotels: Restaurants located in hotels charging a declared tariff above Rs. 7,500 per night are taxed at 18% with ITC; all other restaurants remain at 5% without ITC. This distinction matters for hotel groups operating F&B separately.
• Construction services: A CBIC circular has clarified affordable housing thresholds for composite supply of construction — verify the applicable carpet area cap and value ceiling before applying any concessional rate to ongoing projects.

Practical action: Before issuing invoices in any category that has seen rate movement, pull the latest notification from the unknown node. Back-dating a rate correction requires issuing credit notes to customers who may already have availed ITC on your earlier rate — a cascading reconciliation problem that is far harder to unwind than to prevent.

E-Invoicing in FY 2026-27: Threshold, Process, and Enforcement

E-invoicing under Rule 48(4) of the CGST Rules applies to all registered taxpayers whose aggregate annual turnover in any preceding financial year exceeded Rs. 5 crore. If your turnover crossed that mark in FY 2024-25, you must generate e-invoices for all B2B, B2G, and export invoices from FY 2025-26 onwards. There is no fresh crossing required each year — once you breach the threshold, the obligation persists even if turnover later falls below it.

The IRP process in five steps

1. Your billing or ERP system generates the invoice data in the CBIC-notified JSON schema (version 1.1 or as updated).
2. You upload to one of the authorised Invoice Registration Portals (IRPs) — National Informatics Centre (NIC), Clear, Zoho, or another approved IRP.
3. The IRP validates the data, generates an Invoice Reference Number (IRN) — a 64-character hash — and embeds a signed QR code.
4. The signed e-invoice is returned to your system; you print or email it to the buyer with the IRN and QR code visible.
5. The invoice is invalid without the IRN. Dispatching goods or delivering services against an IRN-less invoice is a compliance failure — not a procedural technicality.

Why buyers are rejecting non-compliant invoices

A B2B buyer cannot claim ITC on a supply from a covered e-invoice supplier unless the invoice carries a valid IRN. Since ITC is the buyer's liability exposure, sophisticated finance teams are now blocking payment to suppliers who issue paper invoices without IRN. If you are a covered supplier, a non-compliant invoice causes you to collect and remit output tax while your customer loses the corresponding credit — the worst of both worlds.

E-way bills and the blocked-EWB list

E-way bills remain mandatory for inter-state movement of goods where the consignment value exceeds Rs. 50,000. Intra-state thresholds vary by state — several states have lowered the limit to Rs. 1 lakh or less for specific goods categories. Repeated failures to generate EWBs, or misuse of the cancellation window, results in your GSTIN being placed on the blocked-EWB list, which prevents generation of any new e-way bill. This effectively halts logistics until the underlying non-compliance is corrected — an operational disruption that is entirely avoidable.

GSTR-2B and ITC Discipline: The Ground Rules for FY 2026-27

This is the single most consequential procedural update of the last two years. Under the amended Rule 36(4) of the CGST Rules, ITC can be claimed only to the extent it appears in GSTR-2B for that tax period. The transitional 5% provisional credit buffer has been withdrawn. If an inward invoice is absent from your GSTR-2B, the ITC on it is not available — and claiming it anyway triggers an automatic ASMT-10 mismatch notice.

The reconciliation calendar you must follow

You have a six-day window between the 14th and the 20th to reconcile. This is tight. Vendors who miss the 11th filing deadline push their invoices into the next month's GSTR-2B — meaning your ITC on those invoices is deferred by a full month, with knock-on effects on your working capital.

The vendor compliance loop

Monthly reconciliation is now an operational requirement, not an audit exercise. Here is the practical four-step loop:

1. Download GSTR-2B from the GST portal on or after the 14th of each month.
2. Match against your purchase register — identify invoices in your books but absent from GSTR-2B, and vice versa.
3. Classify each mismatch: supplier has not yet filed; wrong GSTIN on invoice; invoice period differs; rate or value entered incorrectly by supplier.
4. Trigger follow-ups within 48 hours — before the next GSTR-1 filing cycle closes for your suppliers.

Finance teams with discipline on this cycle are now contractually withholding 10% of vendor payments until GSTR-1 filing for the relevant period is confirmed. This is a commercial arrangement, not a statutory one, but it has dramatically reduced non-filing rates among key vendors.

The Invoice Management System (IMS): How to Work It

The Invoice Management System (IMS) on the GST portal functions as a structured inbox for all inward B2B invoices uploaded by your suppliers. It gives you three actions on each invoice before it is locked into GSTR-2B:

• Accept: The invoice matches your purchase order and books. It flows into GSTR-2B and is available for ITC.
• Reject: The invoice has an error — wrong GSTIN, wrong rate, wrong value. It is returned to the supplier for amendment before re-upload.
• Pending (Hold): You are still verifying the invoice. It stays out of GSTR-2B until you act.

The system includes an auto-accept feature that, if enabled, accepts all unactioned invoices once the IMS window closes. If you have not configured IMS actively and auto-accept is on, invoices you intended to reject will flow into GSTR-2B and generate ITC you did not mean to claim — a mismatch waiting to surface at assessment.

Assign a dedicated accounts team member to clear the IMS queue before the 14th of each month. For businesses with more than 100 purchase invoices per month, this is a half-day task that eliminates a full month of reconciliation surprises.

Section 128A Amnesty: Calculating What You Can Save

Section 128A of the CGST Act provides a full waiver of interest under Section 50 and penalty under Sections 73(8) and 73(9) on tax demands for FY 2017-18, FY 2018-19, and FY 2019-20, subject to two conditions: the demand must have arisen under Section 73 (non-fraud), and you must pay the full tax component by the date notified by the government. Check the latest CBIC notification for the current deadline — the window has been extended once already but is not open indefinitely.

Worked example: real Rs. savings from Section 128A

Scenario: A registered trader has a confirmed demand under Section 73 for FY 2018-19 comprising:

• Tax shortfall: Rs. 8,00,000
• Interest at 18% p.a. on 3 years of delay (from 2019 to 2022): Rs. 4,32,000
• Penalty at 10% of tax: Rs. 80,000
• Total outflow without amnesty: Rs. 13,12,000

Under Section 128A: Pay only the Rs. 8,00,000 tax. Interest of Rs. 4,32,000 and penalty of Rs. 80,000 are fully waived.

Total saving: Rs. 5,12,000 — a 39% reduction in outflow.

At a cost of funds of 12% per annum, the Rs. 8 lakh tax payment made today under amnesty also saves the interest cost of continuing to litigate for another two or three years. The arithmetic strongly favours early settlement in most Section 73 cases.

Step-by-step: how to claim the waiver

1. Pull all pending SCNs and confirmed orders for FY 2017-18 to 2019-20 from your GST portal notices section and your litigation register.
2. Identify those arising under Section 73 — exclude any order citing Section 74 (fraud, suppression, misstatement).
3. Isolate the tax component from interest and penalty in each order.
4. File the waiver application in the prescribed form on the GST portal (under the 'Applications' section — the form reference is as notified by CBIC).
5. Pay the tax component via challan (FORM GST PMT-06) and upload the payment reference.
6. Preserve the acknowledgement number and challan — a later proper officer may not have the record and you will need proof of amnesty compliance.

Exporter Refund Hygiene: LUT, RFD-01, and Deficiency Memo Response

Exporters have their own compliance rhythm, and two procedural failures repeat most consistently across assessments.

File your LUT before the first export invoice

A Letter of Undertaking (LUT) under Rule 96A must be filed for each financial year before you issue your first export invoice without payment of IGST. If you dispatch goods or raise a zero-rated service invoice before filing the LUT, the supply is treated as a taxable supply — you must pay IGST and then claim a cash refund, which takes longer and blocks working capital. Filing the LUT takes less than 10 minutes on the GST portal under User Services → Furnish Letter of Undertaking (LUT).

Filing RFD-01 correctly

FORM GST RFD-01 is the application for refund of unutilised ITC on zero-rated exports without payment of tax (Rule 89 of CGST Rules). File it monthly or quarterly — do not let refund entitlement accumulate beyond two to three months, as it locks up significant working capital. Documents required:

• Statement 3A (invoice-wise export details with HSN, shipping bill number, and date)
• Shipping bills or Bill of Export downloaded from ICEGATE
• BRC (Bank Realisation Certificate) or FIRC (Foreign Inward Remittance Certificate) from your bank for services exports
• GSTR-3B showing ITC claimed for the refund period

Why refund applications get rejected — and how to prevent it

If you receive FORM GST RFD-03 (a deficiency memo), you must respond within 15 days. An unanswered deficiency memo causes the application to be treated as withdrawn — you must file a fresh RFD-01, losing all the processing time already spent.

Common Mistakes That Trigger Notices in 2026

CBIC's data analytics infrastructure now cross-references GSTR-1, GSTR-3B, GSTR-2B, e-way bill data, e-invoice data, and annual financial statements. The following patterns reliably generate automated notices:

ITC claimed beyond GSTR-2B

Your GSTR-3B shows higher ITC than your GSTR-2B for the same period. The system generates an ASMT-10 notice within weeks. You must reconcile, reverse the excess, and pay interest under Section 50 at 18% per annum on the excess from the date of claim.

Turnover mismatch across returns

GSTR-1 turnover significantly lower than e-way bill turnover or audited accounts triggers a DRC-01A pre-show-cause intimation. Reconcile your GSTR-1 with your books annually before filing GSTR-9 and disclose differences proactively with a reconciliation statement.

Late or missed credit notes

Credit notes for discount, return of goods, or rate correction must be issued before the earlier of 30 November of the following financial year or the date of filing GSTR-9. A credit note issued after this window does not reduce your output tax liability — you absorb the cost entirely. This rule catches businesses where commercial settlements are slow: agree the credit note timeline in your contracts.

GSTR-9 non-filing

The annual return GSTR-9 for FY 2024-25 is due by 31 December 2025. Late filing attracts Rs. 200 per day (Rs. 100 CGST + Rs. 100 SGST), subject to a maximum of 0.25% of your turnover in the state. For a business with Rs. 5 crore turnover, the cap is Rs. 1,25,000 — an entirely avoidable cash outflow.

Notices ignored past their deadline

ASMT-10, DRC-01, and DRC-07 all carry statutory response timelines (typically 30 days from notice date). An unanswered DRC-01 leads to a DRC-07 demand order, which is directly recoverable. Build a notice tracker — spreadsheet or otherwise — that captures the notice reference, date of service, due date for response, and current status. Review it weekly.

Key Takeaways

• GSTR-2B is absolute: There is no provisional buffer. Reconcile your purchase register against GSTR-2B by the 14th of every month, before filing GSTR-3B on the 20th.
• E-invoicing at Rs. 5 crore is non-negotiable: B2B invoices without a valid IRN are ineffective for the buyer's ITC — covered suppliers who issue paper invoices will face payment rejections.
• Section 128A savings are real: A Section 73 demand of Rs. 8 lakh can mean Rs. 5 lakh in waivable interest and penalty — run the numbers on your pending demands before the amnesty window closes.
• IMS requires active management: Configure your IMS queue and clear it before the 14th; auto-accept can silently create ITC discrepancies in both directions.
• Export compliance starts on Day 1: File LUT before your first export invoice of FY 2026-27; do not let RFD-01 applications accumulate beyond 90 days of ITC build-up.
• Notice response timelines are hard deadlines: A missed DRC-01 response becomes a DRC-07 demand order — maintain a live notice register with due dates.
• Rate classification disputes are resolved by CBIC circulars, not assumptions: Where doubt exists between two rates, the CBIC circular is the authoritative source; apply the clarified rate and keep the circular on file for assessments.