GST 2.0, one year on: what the 5% and 18% slabs changed for manufacturers

GST 2.0 is the GST rate rationalisation that took effect on 22 September 2025. It replaced the four main slabs (5%, 12%, 18% and 28%) with two, 5% and 18%, plus a 40% rate for a short list of luxury and sin goods. The GST Council approved it at its 56th meeting on 3 September 2025. For manufacturers, the new rates were the easy part. The work was in everything that stores a rate: item masters, price lists, open quotations, sales orders, and credit notes against old invoices.

A year on, here's what changed, the mistakes that came up most often, and a checklist for keeping your system right the next time rates move.

What exactly changed in GST 2.0?

• Most goods at 12% moved to 5%, and most goods at 28% moved to 18%.
• A 40% rate now applies to a narrow set of goods, including tobacco products, aerated and caffeinated drinks, and larger cars.
• Many inputs and consumer goods became cheaper, which pushed manufacturers to revise list prices.
• The Council also recommended process changes, including faster provisional refunds for inverted duty claims.

The government's official explainer is linked in the sources below. Your rate always depends on the HSN code, so verify each item rather than assuming its whole category moved.

What did GST 2.0 mean for a manufacturer's systems?

A rate change touches every document that carries a tax rate. These areas caused the most trouble:

Which rate applies when the rate changes mid-order?

Section 14 of the CGST Act decides it using three dates: when the goods were supplied, when the invoice was issued, and when payment was received. If two of the three fall after the change, the new rate applies. If two fall before it, the old rate applies. For a typical manufacturer that booked an order before 22 September but dispatched, invoiced and was paid after it, the new rate applies. Advances received before the change against invoices raised after it are where you need care, so ask your CA to review those cases.

Credit notes against old invoices

A common error: a customer returns goods invoiced at 12% in August 2025, and the credit note goes out at 5% because the item master now says 5%. A credit note reverses part of the original supply, so it should carry the original invoice's rate. Systems that raise credit notes against the source invoice make this easy to get right; systems that recompute tax from the item master make it easy to get wrong.

Inverted duty: who is affected and what to do

Where finished goods moved to 5% but inputs stayed at 18%, some manufacturers ended up with an inverted duty structure: more input tax credit than output tax. Bamboo and cane furniture is a clear example (see our furniture manufacturing guide). The unused credit can be refunded under Section 54(3) within two years of the relevant date, using the prescribed formula. To claim it, keep three things clean: HSN-wise purchases, HSN-wise outward supplies, and an input tax credit ledger that ties to GSTR-2B. Units that run purchase, production and sales in one system have this data ready. Units that reconcile spreadsheets at quarter-end often leave refunds unclaimed.

Did manufacturers pass on the rate cut?

Where output rates fell, buyers expected lower prices, and the government monitored consumer prices closely in the weeks after 22 September. For B2B manufacturers, the bigger effect was on quotes and contracts written including tax, which had to be renegotiated. The lesson for next time is simple: quote and contract excluding tax, so a rate change moves the tax line and not your margin.

Checklist: getting your system ready for the next rate change

1. Every item has an HSN code and tax rate in the item master. No free-text tax on invoices.
2. Quotes, price lists and contracts exclude tax.
3. Credit and debit notes are raised against the original invoice and use its rate.
4. Open orders are reviewed on the day of the change, and invoices follow the time-of-supply rules.
5. Product costing uses current purchase prices, so a change in input tax shows up in margins.
6. HSN-wise summaries for GSTR-1 come straight from invoices, not from a separate spreadsheet.

The last point matters more since GSTR-3B liability was hard-locked: what your invoices say is what you pay. See GSTR-3B hard-locking and IMS.

A rate change is a one-day event for the government and a month of clean-up for any business whose tax rate lives in more than one place.

Where Dravyaa fits

In Dravyaa, the HSN code and CGST, SGST and IGST rates live on each item, so a rate change is made once and flows into new invoices, e-invoices and e-way bills. Credit notes can be raised against the original invoice. Accounting posts invoices, bills and payments automatically, so HSN-wise sales and purchases are available without re-keying.