GST Update: 28% Tax Scrapped on Tobacco & Pan Masala Under New Notifications

GST Notifications Covered

  • Notification No. 19/2025 – Central Tax (Rate)

  • Notification No. 20/2025 – Central Tax

  • Notification No. 19/2025 – Central Tax
    (All applicable from 1 February 2026)

1. Background & Policy Rationale

For many years, products such as tobacco, pan masala and cigarettes were subject to 28% GST along with Compensation Cess, and in some cases additional levies like excise duty or NCCD. This multi-layered tax structure led to valuation disputes, litigation, and frequent cases of undervaluation.

With the compensation cess regime approaching its end, the Government has rolled out a comprehensive GST reset for sin goods. Through a coordinated set of three notifications, changes have been introduced covering:

  • GST rates

  • Valuation mechanism

  • Statutory backing under section 15(5) of the CGST Act

2. Notification No. 19/2025 – Central Tax (Rate)

GST Rate Rationalisation

Key Changes

  • The 28% GST slab is withdrawn for tobacco and pan masala.

  • Biris are specifically taxed at 18% GST.

  • All other tobacco-related products are now subject to 40% GST (20% CGST + 20% SGST), including:

    • Pan masala

    • Unmanufactured tobacco and tobacco refuse

    • Cigarettes, cigars and cheroots

    • Manufactured tobacco (excluding biris)

    • Heated tobacco and nicotine inhalation products such as vapes

  • The earlier 14% GST schedule is deleted.

Significance

  • Signals a clear exit from the 28% + Compensation Cess framework.

  • Consolidates taxation into higher GST slabs to ensure revenue stability.

  • Reflects policy intent to discourage consumption while safeguarding tax collections.

📄 Source: Notification No. 19/2025 – Central Tax (Rate)

3. Notification No. 20/2025 – Central Tax

Shift to MRP / Retail Sale Price–Based Valuation

Introduction of Rule 31D

For specified tobacco and pan masala products, GST valuation will no longer be based on transaction value.

Value of supply = Retail Sale Price (RSP/MRP) minus GST

Products Covered

The valuation change applies to the same product categories covered under the rate notification, excluding biris.

Key Valuation Provisions

  • RSP includes all taxes, duties, cess and surcharges.

  • Where multiple MRPs are printed, the highest MRP will apply.

  • Any increase in MRP at any stage becomes the taxable value.

  • If different MRPs are declared for different regions, valuation will be based on the area-specific MRP.

Rule 86B Relaxation (ITC Payment Restriction)

  • Traders (non-manufacturers) dealing in these goods are exempt from the 99% cash payment restriction, provided GST has been paid by the supplier on an RSP basis.

Significance

  • Effectively eliminates undervaluation.

  • Aligns GST valuation with the earlier excise-style MRP regime.

  • Guarantees minimum assured tax realisation.

📄 Source: Notification No. 20/2025 – Central Tax

4. Notification No. 19/2025 – Central Tax

Legal Backing under Section 15(5)

This notification amends Notification No. 49/2023–Central Tax to formally notify goods whose value shall be determined under section 15(5) of the CGST Act.

Key Purpose

  • Specifies tobacco and pan masala products bearing RSP as goods subject to special valuation rules.

  • Overrides transaction-value-based valuation.

Importance

  • Provides statutory authority to Rule 31D.

  • Minimises valuation disputes and litigation risks.

  • Ensures uniform nationwide application.

📄 Source: Notification No. 19/2025 – Central Tax

5. How the Three Notifications Operate Together

Aspect CT (Rate) 19/2025 CT 20/2025 CT 19/2025
Focus Rate restructuring Valuation & ITC Legal authority
Core Change 28% slab removed MRP-based valuation Section 15(5) coverage
Goods Tobacco, pan masala, vapes Same goods Same goods
Outcome Higher GST slabs No undervaluation Strong legal backing

6. Practical Impact on Stakeholders

Manufacturers

  • Pricing must be strictly aligned with declared MRP.

  • Any MRP increase results in higher GST liability.

  • ERP, invoicing and compliance systems require updates for tax back-calculation.

Traders & Distributors

  • Relief from Rule 86B restrictions where suppliers pay GST on RSP basis.

  • Must ensure MRP compliance throughout the supply chain.

Tax Professionals

  • Clear shift from transaction-value disputes to MRP-based certainty.

  • Critical advisory role in pricing, packaging, valuation and compliance reviews.

Top 10 Changes in GST & Income Tax Applicable from January 1, 2026

Important Tax Compliance Changes from 1 January 2026 – What Every Taxpayer Must Know

The commencement of 1 January 2026 brings significant compliance implications under GST and Income Tax laws in India. Multiple statutory deadlines expire on 31 December 2025, after which several system-driven restrictions, penalties, and consequences automatically come into force.

Failure to act before these cut-off dates may lead to late fees, interest liabilities, denial of Input Tax Credit (ITC), inoperative PAN, suspension of GST registration, and increased tax burden.

This article outlines the key changes effective from 1 January 2026, including several often overlooked but high-risk compliance areas.

1. GSTR-9 / GSTR-9C Due Date Expired – Late Fees Triggered

The last date to file GSTR-9 and GSTR-9C for FY 2024-25 is 31 December 2025.

From 1 January 2026, these returns can still be filed, but mandatory late fees will apply based on turnover slabs.

GSTR-9 Late Fee Structure (Applicable from FY 2022-23 onwards)

Annual Turnover Late Fee per Day (CGST + SGST) Maximum Late Fee
Up to ₹5 crore ₹50 (₹25 + ₹25) 0.04% of turnover
₹5 crore – ₹20 crore ₹100 (₹50 + ₹50) 0.04% of turnover
Above ₹20 crore ₹200 (₹100 + ₹100) 0.05% of turnover

Important Points:

  • Late fees continue to accumulate until the return is filed

  • No automatic waiver is available after the due date

  • GSTR-9C cannot be filed unless GSTR-9 is first filed

  • Late fee for GSTR-9C is ₹200 per day, capped at 0.05% of turnover

2. Belated and Revised ITR Filing Window Closes on 31 December 2025

For FY 2024-25 (AY 2025-26):

  • Belated Return under Section 139(4)

  • Revised Return under Section 139(5)

👉 Both are permitted only up to 31 December 2025.

From 1 January 2026, taxpayers will no longer be allowed to file either a belated or revised return for this financial year.

3. Updated Return Remains the Only Option – At a High Cost

Post 31 December 2025, the only return filing option available is the Updated Return under Section 139(8A).

Key Rules for Updated Returns

  • Can be filed up to 4 years from the end of the relevant assessment year

  • Allowed only in cases of:

    • Omitted income

    • Incorrect claims of exemptions, deductions, or losses

  • Refunds cannot be claimed

  • Losses cannot be carried forward

  • Additional tax payment is mandatory

📌 Updated returns are meant for tax recovery, not routine corrections.

4. PAN Becomes Inoperative If Aadhaar Is Not Linked

Failure to link PAN with Aadhaar results in the PAN becoming inoperative, leading to serious consequences.

Impact of Inoperative PAN

  • Income Tax Return cannot be filed

  • Tax refunds will not be issued

  • TDS will be deducted at higher rates

  • Certain banking transactions may be restricted

  • PAN becomes invalid for GST, investments, loans, and other financial compliance

    5. GSTR-3B Filing to Be Blocked Due to ITC Restrictions from 1 January 2026

    Starting with returns filed for January 2026 onwards, the GST portal will restrict GSTR-3B filing in certain ITC-related mismatch situations.

    ITC Reclaim Ledger Validation

    The amount of ITC reclaimed in Table 4(D)(1) must not exceed:

    • Closing balance of the ITC Reclaim Ledger, plus

    • ITC reversed in Table 4(B)(2) during the current tax period

    Reverse Charge (RCM) Ledger Validation

    ITC claimed under RCM in Table 4A(2) / 4A(3) must not exceed:

    • RCM tax paid and reported in Table 3.1(d), plus

    • Available balance in the RCM Ledger

    ❌ Any negative balance in the ITC or RCM ledger will automatically block GSTR-3B filing.

    6. Non-Submission of Bank Details Will Trigger GST Registration Suspension

    As per Rule 10A of the CGST Rules, furnishing bank account details is mandatory:

    • Within 30 days of GST registration, or

    • Before filing GSTR-1 or IFF, whichever occurs first

    Consequences of Non-Compliance

    • GST registration will be system-suspended

    • Taxpayer will be unable to file returns

    • E-way bill generation will be blocked

    • Suspension remains until bank details are updated

    7. GST Returns Older Than Three Years Become Non-Fileable

    A critical but frequently overlooked provision:

    👉 GST returns pending for more than 3 years become time-barred and cannot be filed.

    This restriction applies to:

    • GSTR-1

    • GSTR-3B

    • GSTR-4

    • GSTR-5, 6, 7, 8, and 9

    📌 Once a return becomes time-barred:

    • Related ITC is permanently forfeited

    • Annual return reconciliation becomes impossible

    • Departmental notices and demand proceedings may follow

    8. Reassess Aggregate Annual Turnover (AATO) – GST Registration May Be Required

    At the beginning of a new financial cycle, businesses should recalculate their Aggregate Annual Turnover (AATO).

    GST registration becomes mandatory if AATO exceeds:

    • ₹20 lakh (₹10 lakh for special category states), or

    • ₹40 lakh for goods suppliers, subject to prescribed conditions

    Failure to register can result in:

    • Tax demand along with interest

    • Monetary penalties

    • Denial of ITC to customers, affecting business credibility

    9. Pay Advance Tax by 15 March to Avoid Interest Liability

    Where total tax liability exceeds ₹10,000, payment of advance tax is compulsory.

    • Final instalment due: 15 March (100% of tax liability)

    Non-payment or short payment may attract:

    • Interest under Sections 234B and 234C

    • Additional tax cost even if the ITR is filed within the due date

    10. Regular Monitoring of Income Tax Portal Is Essential

    Taxpayers must frequently review communications available on the Income Tax Portal, including:

    • E-proceedings and notices

    • Intimations under Section 143(1)

    • Defective return alerts

    • Refund adjustments

    • AIS/TIS mismatch communications

    Ignoring portal notices may lead to:

    • Best judgment assessments

    • Withholding of refunds

    • Penalty and prosecution proceedings

GST Authorities Notify Revised Advisory on ITC Blocking in GSTR-3B

Background of the Advisory

To improve discipline in Input Tax Credit (ITC), minimise manual mistakes, and enable accurate tracking of ITC reversals, reclaims, and Reverse Charge Mechanism (RCM) credits, GSTN has introduced two dedicated electronic statements on the GST portal:

  • Electronic Credit Reversal and Re-claimed Statement (ITC Reclaim Ledger)

  • RCM Liability / ITC Statement (RCM Ledger)

Initially, these statements were only informational and displayed warning messages. However, GSTN has now decided to enforce strict system-based validations, under which GSTR-3B filing will be blocked if excess ITC is claimed or ledger balances turn negative.

This advisory is particularly critical for regular GST taxpayers, especially those involved in:

  • ITC reversals under Rules 37, 42, and 43

  • Temporary ITC reversals followed by re-claims

  • Transactions covered under Reverse Charge Mechanism (RCM)

1. Electronic Credit Reversal & Re-claimed Statement (ITC Reclaim Ledger)

Introduction & Applicability

This ledger has been implemented from:

  • August 2023 for monthly filers

  • July–September 2023 quarter for QRMP taxpayers

Objective

Its main purpose is to monitor ITC that is reversed temporarily and subsequently reclaimed, ensuring proper linkage between the two.

Details Captured

The statement records:

  • ITC reversed in Table 4(B)(2) of GSTR-3B

  • ITC reclaimed through:

    • Table 4(A)(5)

    • Table 4(D)(1)

This mechanism ensures that only ITC previously reversed can be reclaimed.

Navigation Path

Dashboard → Services → Ledger → Electronic Credit Reversal and Re-claimed Statement

2. Current System Behaviour (Till Now)

At present:

  • If reclaimed ITC exceeds the available reversed balance,
    👉 the system only displays a warning message

  • GSTR-3B filing is still permitted

GSTN observed that many taxpayers ignored these alerts, which resulted in:

  • Negative balances in ledgers

  • Excess utilisation of ITC

  • Increased scrutiny, disputes, and notices later

3. RCM Liability / ITC Statement (RCM Ledger)

Introduction & Applicability

This ledger became operational from:

  • August 2024 for monthly filers

  • July–September 2024 quarter for QRMP taxpayers

Purpose

It ensures that:

  • RCM tax liability is properly discharged

  • ITC under RCM is claimed only after payment

Information Tracked

The statement captures:

  • RCM liability reported in Table 3.1(d) of GSTR-3B

  • Corresponding ITC claimed in:

    • Table 4(A)(2) – RCM on inward supplies

    • Table 4(A)(3) – RCM on import of services

Navigation Path

Services → Ledger → RCM Liability / ITC Statement

4. Opening Balance Facility – Relief Provided Earlier

GSTN had earlier allowed taxpayers multiple opportunities to:

  • Declare opening balances in both ledgers

  • Correct excess reversals or excess RCM ITC claimed earlier

  • Rectify historical mismatches before enforcement

This was offered as a one-time corrective measure to help taxpayers clean up past errors.

5. Key Upcoming Change – Mandatory System Validation

GSTN has now announced that shortly:

  • ❌ Negative ledger balances will not be allowed

  • ❌ Excess ITC claims will result in blocking of GSTR-3B filing

6. New Validation Rules – Explained Simply

A. Validation for ITC Re-claim (Table 4(D)(1))

ITC reclaimed in Table 4(D)(1) must not exceed:

Closing balance of ITC Reclaim Ledger
+
ITC reversed in Table 4(B)(2) of the same return

In simple terms:
You can reclaim ITC only if:

  • It was reversed earlier, or

  • It is being reversed again in the same tax period

B. Validation for RCM ITC Claim

RCM ITC claimed in Table 4(A)(2) and 4(A)(3) must not exceed:

RCM tax paid in Table 3.1(d) of the same period
+
Available balance in the RCM Ledger

In simple terms:
RCM ITC can be claimed only when:

  • The corresponding RCM tax is paid, or

  • Adequate balance is available in the RCM ledger

7. What If the Ledger Balance Is Already Negative?

A. Negative ITC Reclaim Ledger

A negative balance indicates that excess ITC was reclaimed in the past.

👉 Mandatory correction to file GSTR-3B:

  • Reverse the excess ITC in Table 4(B)(2)

    📌 When No ITC Is Available

    If sufficient ITC is not available for reversal:

    • The reversed amount will be automatically added to tax liability

    Illustration:

    • Closing balance: –₹10,000

    • ITC reversed in Table 4(B)(2): ₹10,000

    • If ITC is insufficient → the amount must be paid in cash as tax

    B. Negative RCM Ledger

    A negative balance in the RCM ledger indicates that RCM ITC has been claimed without corresponding tax payment.

    To successfully file GSTR-3B, the taxpayer must choose either of the following:

    1️⃣ Pay the pending RCM liability in Table 3.1(d)
    OR
    2️⃣ Reduce the RCM ITC claimed in Table 4(A)(2) / 4(A)(3)

    Illustration:

    • RCM Ledger balance: –₹5,000

    Options available:

    • Pay ₹5,000 as RCM tax
      OR

    • Reduce RCM ITC claim by ₹5,000

    8. Effect on GSTR-3B Filing – Practical Impact

    Once system validations are implemented:

    • ❌ GSTR-3B filing will be blocked if ledger balances are negative

    • ❌ Excess ITC re-claims or RCM ITC claims will not be permitted

    • ✔ Only accurate and reconciled ITC will be accepted

    This represents a clear transition from advisory-based compliance to strict enforcement.

    9. Important Takeaways for Taxpayers & Professionals

    ✔ Reclaim only ITC that was genuinely reversed earlier
    ✔ Claim RCM ITC only after ensuring tax payment
    ✔ Review ITC Reclaim Ledger and RCM Ledger regularly
    ✔ Rectify negative balances without delay
    ✔ Never ignore system warning messages
    ✔ Reconcile GSTR-3B figures with ledger balances every month

    10. Who Needs to Be Extra Vigilant?

    This advisory is particularly critical for:

    • Businesses facing delays in vendor payments

    • Taxpayers applying Rule 37 reversals

    • Entities availing provisional ITC

    • Businesses with high RCM exposure

    • Chartered Accountants and consultants managing multiple clients

    • Taxpayers who made manual ITC adjustments in earlier years

    Final Note

    This advisory signals a decisive move towards automated and system-driven ITC governance.
    Manual adjustments and post-compliance justifications are no longer sustainable.

    👉 Ledger balance now determines return filing eligibility.

    Taxpayers are strongly advised to immediately review their ITC Reclaim Ledger and RCM Ledger and correct discrepancies before validations are enforced, to avoid return filing blocks, additional cash payments, and departmental notices.

Why 31 December Is So Important for Professionals and Businesses

31st December 2025 is far more than just the close of the calendar year.
It marks one of the most crucial compliance cut-off dates under GST, Income Tax, and MCA regulations for FY 2024-25 / AY 2025-26.

For Chartered Accountants, tax consultants, business owners, companies, and professionals, overlooking this deadline can lead to loss of refunds, late fees, penalties, and long-term litigation exposure.

Let us break down why this single date carries such immense importance.

🔴 1. Deadline for Filing GSTR-9 (GST Annual Return) – FY 2024-25

GSTR-9 is the annual GST return that provides a consolidated view of:

  • Outward supplies

  • Inward supplies

  • Input Tax Credit (ITC) claimed

  • Taxes paid

  • Year-end adjustments

Important points to note:

  • 31st December 2025 is the statutory due date for filing GSTR-9 for FY 2024-25

  • Filing is optional for taxpayers with AATO up to ₹2 crore

  • Once submitted, GSTR-9 cannot be revised

This return plays a key role in:

  • GST scrutiny proceedings

  • Departmental notices

  • ITC verification and reconciliation

Who needs to be especially cautious?

  • Businesses with multiple amendments during the year

  • Taxpayers who rectified FY 2024-25 errors in FY 2025-26

  • Taxpayers facing ITC mismatches with GSTR-2B

🔴 2. Due Date for Filing GSTR-9C (GST Reconciliation Statement)

GSTR-9C is a reconciliation statement comparing:

  • Audited financial statements

  • GSTR-9 annual return

Key highlights:

  • Applicable to taxpayers whose turnover exceeds the prescribed audit limit

  • 31st December 2025 is the final due date

  • Although now self-certified, it remains a high-risk compliance document

Any mismatch may trigger:

  • GST audits

  • Demand notices

  • Interest and penalty proceedings

🔴 3. Final Date to File Belated or Revised ITR – AY 2025-26

This is one of the most overlooked yet most critical year-end deadlines.

What closes on 31st December 2025?

  • Filing of Belated Income Tax Returns

  • Filing of Revised Income Tax Returns

Why this date is crucial:

  • It is the last chance for non-filers to submit their return

  • Errors in earlier returns can no longer be corrected after this date

  • Unclaimed income tax refunds may lapse permanently

Who should be extra alert?

  • Salaried individuals awaiting refunds

  • Professionals and freelancers with TDS deductions

  • Businesses that filed incorrect or incomplete returns earlier

  • Taxpayers who have received CPC intimations or mismatch notices

    🔴 4. MCA Annual Compliance – Extended Due Date up to 31st December 2025

    The Ministry of Corporate Affairs (MCA) has permitted companies to complete their annual compliance filings for FY 2024-25 on or before 31st December 2025.

    Forms included:

    • AOC-4 – Filing of financial statements

    • MGT-7 / MGT-7A – Annual return

    Why this deadline matters:

    • Filing within the extended timeline helps avoid substantial additional fees

    • Failure to comply may result in:

      • Monetary penalties on the company

      • Personal penalties on directors

      • Long-term risk of director disqualification

    🔴 5. PAN–Aadhaar Linking – Practical Year-End Implications

    While PAN–Aadhaar linking requirements differ based on taxpayer categories, 31st December 2025 effectively serves as a practical deadline to ensure:

    • Hassle-free income tax return filing

    • Timely processing of tax refunds

    • Prevention of PAN becoming inoperative for income tax purposes

    Taxpayers with pending PAN–Aadhaar linkage issues frequently encounter:

    • Delays or blockage of refunds

    • Difficulties in filing returns

    • Increased scrutiny, notices, and compliance-related delays

      📌 Professional Compliance Checklist – Tasks to Complete Before 31st December 2025

      ✔ Ensure filing of GSTR-9 for FY 2024-25
      ✔ Submit GSTR-9C wherever reconciliation requirements apply
      ✔ File belated or revised Income Tax Returns for AY 2025-26
      ✔ Complete MCA annual compliances, including AOC-4 and MGT-7 / MGT-7A
      ✔ Confirm and regularise PAN–Aadhaar linkage status
      ✔ Finalise reconciliations, verifications, and supporting documentation

GST in 2025: Simplified tax rates, quicker dispute resolution, and stricter compliance

 

Representative Image

Nearly ten years after its introduction, the Goods and Services Tax (GST) entered a more stable and mature phase in 2025. The emphasis moved away from resolving transitional challenges to creating a predictable, consistent, and trust-based tax system. Tax professionals have termed this phase GST 2.0, as multiple policy initiatives and compliance reforms reshaped India’s indirect tax landscape.

Experts say 2025 represents a decisive shift for GST, moving beyond legacy problem-solving towards addressing deeper structural inefficiencies. The focus this year was on curbing litigation and laying the groundwork for a more transparent and growth-oriented tax regime.

GST rate rationalisation takes centre stage

One of the most significant developments in 2025 was the rollout of GST rate rationalisation in September. The revised framework consolidated tax rates into fewer slabs — 5% for essential goods, 18% as the standard rate, and 40% for luxury and sin goods.

This restructuring aimed to ease the tax burden on widely consumed items while safeguarding government revenues. It also sought to resolve persistent classification disputes and inverted duty structures that had long fuelled litigation between taxpayers and authorities.

GST Appellate Tribunal finally operational

After prolonged delays, the GST Appellate Tribunal (GSTAT) became functional in 2025, completing the dispute resolution mechanism under GST.

The tribunal is expected to reduce pressure on high courts, ensure uniform interpretation of GST laws across states, and enable faster resolution of disputes. For MSMEs and mid-sized enterprises, this marks a crucial development that could substantially lower litigation costs and timelines.

“The operationalisation of the GST Appellate Tribunal completes the adjudication framework. It is expected to bring consistency in rulings, reduce the burden on high courts, and provide quicker and more predictable dispute resolution,” an expert said.

Government acts to safeguard revenue

In 2025, the government also addressed a key revenue concern by overturning the Supreme Court’s ruling in the Safari Retreats case, which had permitted input tax credit (ITC) on construction costs where buildings were used for taxable rentals.

Through the Finance Act, 2025, Section 17(5)(d) of the CGST Act was amended retrospectively from July 1, 2017. A subtle yet significant change in wording — replacing “plant or machinery” with “plant and machinery” — aligned the provision with the statutory definition that excludes buildings and civil structures. As a result, ITC on construction of buildings now stands explicitly blocked, even when such properties generate taxable rental income.

While the government described the earlier wording as a drafting oversight, experts noted that the amendment has far-reaching implications, particularly for the real estate and leasing sectors.

“This amendment could negatively impact businesses engaged in renting commercial properties. Its consequences may require companies to reassess financial and operational strategies,” an expert observed.

Relief for post-sale discounts

Among the more taxpayer-friendly measures introduced in 2025 was the relaxation of rules governing post-sale discounts. Following the 56th GST Council meeting, amendments to Sections 15(3)(b) and 34 of the CGST Act now permit suppliers to issue GST credit notes for post-sale discounts without linking them to individual invoices.

Experts say this reform brings GST law closer to standard commercial practices such as annual turnover-based rebates, reduces compliance burdens, minimises disputes, and improves overall ease of doing business.

As India approaches the next decade of GST, 2025 is likely to stand out as the year when the tax system transitioned decisively from stabilisation to deep structural reform.

GSTN issues comprehensive FAQ compilation on GSTR-9/9C for FY 2024-25

What’s New?

GSTN has issued a Consolidated set of FAQs for GSTR-9 and GSTR-9C for FY 2024-25 to assist taxpayers in accurately filing their Annual Return and Reconciliation Statement.

This consolidated document brings together FAQs earlier released on:

  • 16 October 2025

  • 4 December 2025

To simplify compliance, GSTN has now made all clarifications available in one single document on the GST portal.

👉 Download the Consolidated FAQs here
👉 Click here to enroll in the Practical GSTR-9/9C Course

📌 Objective of the Consolidated FAQs

The consolidated FAQs are intended to:

  • Address frequently asked questions and common errors in GSTR-9 and GSTR-9C filing

  • Offer clear guidance on reporting turnover, tax liability, ITC, amendments, and reversals

  • Minimise filing mistakes that could result in notices, mismatches, or departmental scrutiny

GST inversion leading to input credit buildup, fertiliser industry urges clarification: FAI chief

New Delhi [India], December 10 (ANI): The Fertiliser Association of India (FAI) has sought key GST clarifications to ease financial pressure on the fertiliser sector, flagging that tax rate inversion is continuing to result in the accumulation of input tax credits.

Speaking to ANI, FAI Chairman S. Sankarasubramanian said the industry has been urging the government to align GST rates on key raw materials such as ammonia and sulphuric acid with the 5 per cent tax applicable on finished fertiliser products. He said this alignment would help reduce production costs and improve the competitiveness of fertiliser manufacturers, particularly in the phosphatic segment.

While recent GST reforms have offered some relief, Sankarasubramanian noted that they have not fully resolved the issue of unutilised credits.

“At present, phosphatic fertilisers attract GST at 5 per cent, while several inputs were earlier taxed at 18 per cent and have now been corrected to 5 per cent. Despite this reduction, a structural inversion remains because fertiliser prices include a subsidy component that falls outside the GST value. This leads to continued accumulation of input tax credit,” he explained.

Finished phosphatic and potassic (P&K) fertilisers are taxed at 5 per cent, whereas major inputs such as ammonia and sulphuric acid were taxed at higher rates. Combined with subsidies not forming part of the GST supply value, this mismatch has resulted in large volumes of blocked ITC, straining working capital and affecting industry efficiency.

Speaking on the sidelines of the FAI Annual Seminar 2025, the FAI Chairman welcomed the recent changes introduced by the finance ministry.

“The reduction of GST on raw materials like ammonia and sulphuric acid from 18 per cent to 5 per cent has helped ease the problem of credit accumulation,” he said, while adding that the core imbalance between input and output taxation still persists.

He said the industry has consistently sought government intervention and has approached the finance ministry through the Department of Fertilisers, requesting a mechanism to refund accumulated input tax credit for phosphatic fertilisers. “We are hopeful that this issue will be addressed soon,” he said.

On subsidy reforms, Sankarasubramanian welcomed the government’s proposal to move towards direct benefit transfer (DBT) to farmers instead of routing subsidies through fertiliser manufacturers.

“Under the existing DBT framework, subsidies are paid to the industry while farmers receive fertilisers at subsidised prices,” he said.

He added that the Department of Fertilisers is planning pilot projects in select states and districts. “We have read about the recent announcement. Pilot trials are likely to be conducted in some states in South India and a few districts. This could be a game changer,” he said.

According to him, the move would give farmers greater choice and control. “It places decision-making power directly in the hands of farmers regarding the fertilisers they use. As an industry, we support this initiative and welcome the government’s approach,” Sankarasubramanian said. (ANI)

How significantly will GST influence the Budget 2026 calculations?

The Goods and Services Tax (GST) was rolled out by the Union Government in July 2017 with the objective of consolidating multiple state and central indirect taxes such as VAT, excise duty, and service tax. This landmark reform replaced a fragmented tax system with a single nationwide levy, substantially easing compliance requirements and reducing paperwork for businesses. By integrating various levies into one structure, GST brought greater uniformity to indirect taxation across India.

Why GST is important for India

Prior to GST, the movement of goods across states was often disrupted by varied tax regimes and numerous check posts. The introduction of GST eliminated these inefficiencies by subsuming major indirect taxes and establishing a common national market. A key benefit of this system has been the uninterrupted availability of Input Tax Credit (ITC), which lowered cascading taxes for manufacturers and helped reduce costs for end consumers.

GST has also accelerated the shift towards technology-based compliance. Processes such as online registration, e-way bills, and digital return filing have contributed to the formalisation of the economy. This transition has widened the tax base, improved transparency, and enhanced accountability. A simplified and standardised tax structure has also helped check tax evasion, ensured steadier revenue inflows, and strengthened supply chains across sectors.

High expectations from GST despite rate rationalisation

Significant reforms were announced at the 56th GST Council meeting. The earlier four-rate structure—5%, 12%, 18%, and 28%—was streamlined into two principal slabs of 5% and 18%, along with a separate 40% rate for luxury and demerit goods. In addition, GST rates on several essential and FMCG products were reduced. Many items earlier taxed at 12% or 18% were shifted to the 5% slab, while several consumer durables and electronic goods moved from 28% to 18%. Small cars and motorcycles with engine capacity below 250cc were also brought down to the 18% rate.

Even after these reductions, GST revenues have shown resilience. In November 2025, collections stood at ₹1,70,276 crore, registering a 0.7% year-on-year increase. Between April and November 2025, cumulative gross GST collections amounted to ₹14,75,488 crore, reflecting a healthy annual growth of 8.9%, even after the implementation of GST 2.0 in September 2025.

Relevance for Budget 2026

GST revenue trends serve as a reliable barometer of economic activity, capturing patterns in consumption and business performance. At the same time, lower GST rates leave more disposable income in the hands of consumers, encouraging spending—an important factor in a consumption-led economy like India.

From a fiscal perspective, GST collections have a direct bearing on government expenditure. Any shortfall in expected GST revenue could complicate efforts to meet fiscal deficit targets, unless offset by alternative revenue streams or higher borrowing.

Following the September 2025 rate cuts, demand for consumer goods and automobiles picked up sharply, supported by festive-season spending. This momentum was reflected in GDP growth, which rose to 8.2% in the second quarter after recording 7.8% growth in the first quarter, outperforming expectations.

In sum, GST rate rationalisation has acted as a stabilising force for the Indian economy at a time of global uncertainty, geopolitical risks, and trade-related challenges.

Auto Suspension of GST Registration Under Rule 10A: What Taxpayers Need to Do Right Now

Introduction

Rule 10A of the CGST Rules makes it compulsory for newly registered taxpayers to provide their bank account details shortly after getting their GST registration. The rule aims to curb fake registrations, strengthen KYC verification, and ensure that only genuine businesses operate under the GST framework.

GSTN has now rolled out a stricter system that automatically suspends GST registrations if bank details are not submitted within the required time. This guide breaks down the updated rule, system automation, compliance steps, and what taxpayers should do to avoid suspension.

1. What Rule 10A Requires

Every registered taxpayer must provide their valid bank account details:

  • Within 30 days from the grant of registration, or

  • Before filing the first GSTR-1 or IFF,
    whichever happens first.

Who needs to comply

✔ Regular taxpayers
✔ Composition dealers
✔ Casual taxable persons
✔ SEZ units and developers

Who is exempt

❌ TCS collectors
❌ TDS deductors
❌ Suo-moto registrations
❌ OIDAR & NRTP (with an exception explained later)

2. Auto-Suspension of GST Registration

If a taxpayer does not upload their bank details within the deadline, the GST portal will:

→ Auto-suspend the GST registration

You can view the suspension order under:

Services → User Services → View Notices and Orders

What happens during suspension

  • Filing of GSTR-1/IFF is blocked

  • E-way bill generation stops

  • Changes to core fields are restricted

  • ITC to recipients may be flagged or blocked

  • Business operations may face disruptions

This entire process is system-driven, with no officer approval required.

3. How to Add Bank Account Details

Bank details can be added online through:

Services → Registration → Amendment of Registration (Non-Core Fields)

You’ll need:

  • Bank account number

  • IFSC code

  • Cancelled cheque / bank statement (as per portal format)

Once submitted, the details are updated in your registration profile.

4. Automatic Closure of Cancellation Proceedings

If the only reason for suspension was missing bank details, then:

→ The system will automatically drop the cancellation proceedings

once the bank details are added.

Your registration becomes active again without manual intervention.

5. When Auto-Drop Doesn’t Happen

Sometimes the automatic update may take longer. In that case, taxpayers can manually request closure:

Services → User Services → View Notices and Orders → Initiate Drop Proceedings

This option helps close the cancellation proceedings after the bank details are updated.

6. Special Cases & Exceptions

OIDAR & NRTP

Bank details are not mandatory unless:

  • The OIDAR taxpayer selects “Representative Appointed in India – Yes”

In that situation, bank account details must be provided to ensure traceability within India.

7. What It Means for Taxpayers

Why This Matters

Not adding bank details on time can lead to:

  • Automatic suspension of GST registration

  • Inability to issue invoices properly

  • E-way bill blockage

  • Disruption of ITC for customers

  • Possible cancellation of registration

Best Practices

  • Upload bank details immediately after receiving your GSTIN

  • Keep your cheque/bank statement ready

  • Check notices regularly on the portal

  • Ensure bank details are entered correctly to avoid delays

Conclusion

The auto-suspension rule under Rule 10A makes timely KYC compliance more crucial than ever. Submitting bank account details is now one of the first and most important steps after obtaining GST registration. With automated suspension and reinstatement features, taxpayers must stay alert and ensure compliance to avoid interruptions in business activities.

FM Sitharaman announces tax proposal for demerit goods only, keeping essential goods exempt

Finance Minister Nirmala Sitharaman on Thursday clarified that the proposed Health and National Security Cess will apply only to demerit goods such as pan masala, and not to any essential commodities. She added that the revenue collected from this cess will be shared with states for health-related programmes.

Introducing the Health and National Security Cess Bill, 2025 in the Lok Sabha, the minister said the objective is to create a dedicated and stable source of funds for two key areas — health and national security.

“This cess is not being imposed on essential items. It is targeted at demerit goods that pose serious health risks. The intent is to create a deterrent so that consumption of such products declines,” Sitharaman said.

She noted that pan masala will attract the maximum 40% GST rate, in line with its consumption-based tax structure, and the new cess will not affect GST revenues. Instead, the cess will be charged over and above GST, based on the production capacity of machines installed in pan masala factories.

“The cess liability will vary for each unit depending on its production capacity,” the minister explained.

Since GST is levied at the consumption stage and excise duty cannot be applied to pan masala, the government has proposed this cess to ensure the product is appropriately taxed as a demerit good.

A portion of the cess revenue will be distributed to states for health awareness and other health-related activities, she said.

Sitharaman added that because excise duty cannot be levied on pan masala, a separate cess law is required to tax its production — alongside GST, which continues to apply at the consumption level.

Currently, pan masala, tobacco, and similar products attract 28% GST plus a variable compensation cess. After the compensation cess ends, the GST on these items will rise to 40%. Along with this, tobacco will also be subject to excise duty, and pan masala to the new Health and National Security Cess.

On Wednesday, the Lok Sabha passed a Bill amending the Central Excise Act, 1944, enabling excise duty on tobacco products in addition to the 40% GST.

Both the tobacco excise Bill and the new cess Bill come as the GST compensation cess nears its expiry, since loan repayments are expected to conclude in the coming weeks.

When GST was introduced on July 1, 2017, a compensation cess was implemented for five years to offset states’ revenue losses until June 30, 2022. It was later extended until March 31, 2026, with collections being used to repay the ₹2.69 lakh crore borrowed to compensate states during the Covid period.