Live Update: Businesses Raise Input Tax Credit Concerns over GST Implementation; Potential Cost and Benefit Impacts Discussed

The 56th GST Council Meeting in 2025 was held after a series of GoM meetings in the last week of August. The Council unanimously decided to implement a simplified two-tier rate structure of 5% and 18%, effective from September 22, 2025.

The decision is expected to have a significant impact on various sectors, with the focus on companies like HUL, Emami, and Marico in the context of GST rate cuts on packaged foods. Critical items like cement have seen a reduction in tax rates, with cement moving from a 28% rate to 18%, which should be a huge positive for the infrastructure sector.

The Input Tax Credit (ITC) provisions remain consistent with Section 16(1) of the CGST Act, 2017. Registered businesses can claim ITC on inward supplies used in the course or furtherance of their business, provided the tax was duly charged and the conditions under Section 49 are met.

However, for supplies made on or after September 22, 2025, ITC will need to be reversed if the outward supply becomes exempt under the new rate schedule. If a taxpayer has accumulated ITC at a higher rate before the new rates take effect, they can continue to utilize this credit to discharge any output tax liability as per Section 49(4) of the CGST Act.

The GoM, comprising ministers from six states, approved the proposal to simplify GST slabs. However, the specific details of the new slabs were not mentioned in the given paragraph. Two key concerns were raised by the GoM: finding an alternative mechanism to recover revenue loss after GST rate cuts on packaged foods, and ensuring the benefits from GST rate cuts percolate to the common man.

The new GST rate changes include a decrease in the cost of daily use items and services like hotel rates below Rs 7,500. Economists have generally hailed the measures, anticipating an uptick in consumption demand that could aid multiple policy levers.

The price development for cement and FMCG products after September 22, 2025, is expected to see moderate increases in raw material costs, influenced by factors such as supply constraints and regulatory changes. However, specific detailed forecasts for these exact products and date were not found in the available information. Steel prices are projected to increase moderately due to upcoming regulations, and construction materials like fly ash (used in cement) show steady market growth, indicating potential upward pressure on cement prices. FMCG price trends are less directly reported but may be affected by increased raw material costs, particularly for rare earths and metals relevant for industrial inputs. Overall, moderate price increases are anticipated rather than sharp rises as of late September 2025.