India's Goods and Services Tax has been in force since 1 July 2017, but the regime a business must comply with in 2026 looks materially different from the one introduced nine years ago. The "GST 2.0" reforms that took effect on 22 September 2025 collapsed the old five-slab structure, tightened compliance timelines and removed some filing burdens while adding others. This is a practical map of the framework as it now stands: the statutes that create the tax, how rates and invoices work, what has to be filed and when, how input tax credit flows and where it is blocked, how the monthly and annual reconciliations fit together, and what non-compliance costs. It reflects the law as researched to 2 July 2026; because GST is amended almost monthly during Council sessions, anything time-sensitive should be checked against the official CBIC and GST portal sources before it is relied on.
The Four Statutes and What "Supply" Means
GST is not one Act but four, all implemented on 1 July 2017 (extended to Jammu and Kashmir on 8 July 2017). The Central Goods and Services Tax Act, 2017 (CGST) governs the levy of central GST on intra-State supplies; the State GST Acts (SGST) do the same at State level; the Integrated GST Act, 2017 (IGST) covers inter-State supplies and imports; and the Union Territory GST Act, 2017 (UTGST) covers Union Territory supplies. The whole edifice rests on the concept of "supply". Section 7 of the CGST Act defines it to include:
"(a) all forms of supply of goods or services made or agreed to be made for a consideration in the course or furtherance of business; (b) importation of services for consideration whether or not in the course of business; and (c) supplies specified in Schedule I [gifts, capital-asset disposals where ITC was availed, inter-establishment transfers]."
How a supply is taxed depends on where it moves. An intra-State supply attracts CGST and SGST in equal halves (on a standard-rated item, 9% plus 9%). An inter-State supply attracts IGST alone at a rate equal to the combined CGST and SGST, collected centrally and apportioned between the Centre and States. A Union Territory supply attracts CGST and UTGST. Tax is charged on the "transaction value" under Section 15, which sweeps in most duties, cesses and charges levied under other statutes but excludes GST itself.
Two classification rules recur in practice. A composite supply under Section 2(30) — two or more supplies naturally bundled, one principal and the rest ancillary, such as goods sold with packing, insurance and transport — is taxed at the rate of the principal supply. A mixed supply under Section 2(74) — items sold together for a single price but not naturally bundled, such as a gift hamper of cakes, chocolates and drinks — is taxed at the highest rate applicable to any component.
Who Must Register
Registration turns on "aggregate turnover", defined in Section 2(6) as the PAN-wide, all-India value of taxable, exempt, export and inter-State supplies (excluding inward supplies taxed on reverse charge and excluding the GST itself). The thresholds differ by the nature of the supply:
- Suppliers of goods, intra-State: registration is mandatory once turnover exceeds ₹40 lakh (₹20 lakh in the Special Category States — Himachal Pradesh, Uttarakhand, Jammu and Kashmir, Assam).
- Suppliers of services, intra-State: mandatory above ₹20 lakh (₹10 lakh in Special Category States).
- Inter-State suppliers: mandatory regardless of turnover.
- Casual and non-resident taxable persons: must register before making supplies, or within five days of commencing.
Rate Slabs After GST 2.0
The 56th GST Council meeting (September 2025) reduced the rate structure to four principal slabs — 0%, 5%, 18% and 40% — eliminating the old 12% and 28% brackets. Broadly, the 12% items moved to 5% or 18%, and the 28% items moved to 18% for standard goods or to a new 40% band reserved for sin and luxury goods.
| Slab | Covers | Illustrative items |
|---|---|---|
| 0% | Essential and basic goods; health; education | Unpacked food, milk, bread, salt, books, newspapers, education and health services |
| 5% | Daily-use FMCG and necessities | Hair oil, shampoo, toothpaste, soap, sanitary napkins, butter, ghee, cheese, diagnostic kits |
| 18% | Standard-rated goods and services | Most electronics and services, textiles, restaurant services, motor vehicles for goods transport (reduced from 28%) |
| 40% | Sin and luxury goods | Tobacco, pan masala, aerated and carbonated drinks, personal aircraft and yachts, motorcycles over 350cc, casino admission |
A handful of items sit outside the standard slabs. Gold and precious-metal jewellery is taxed at 3% (on metal cost and making charges combined). Diamonds attract a graduated structure keyed to processing stage: rough or unworked diamonds at 0.25%, cut and polished loose diamonds at 1.5% (raised from 0.25% with effect from 18 July 2022 to relieve credit accumulation), and diamond jewellery at 3%; job work of cutting and polishing is 1.5%. Separately, a compensation cess continues to apply on top of GST on certain goods — tobacco products, coal, lignite and peat, specified motor vehicles, and aerated and carbonated waters — pushing the effective tax on some sin goods well past 40%. Every good is classified under its Harmonised System of Nomenclature (HSN) code, and it is the HSN classification that fixes the applicable rate.
Invoicing, E-Invoicing and E-Way Bills
Under Section 31 and Rule 47, a tax invoice must issue before or at the time of removal of goods (where the supply involves movement) or at delivery, and for services before or after provision but within the prescribed period. Rule 46 lists the mandatory particulars — supplier and recipient details with GSTIN, a consecutive invoice number (maximum 16 characters), date, HSN code, description, quantity, taxable value, the applicable CGST/SGST/IGST/UTGST or cess rate and amount, place of supply, any reverse-charge indication, and a signature (dispensed with for e-invoices, which instead carry a QR code). For an unregistered recipient, the recipient's full details and place of delivery are required once the supply value reaches ₹50,000.
The time of supply is the point at which the liability crystallises and fixes the return period in which the invoice belongs. For goods it is the earlier of dispatch, delivery, or payment received before dispatch; for services it is the earliest of the contractual date, the invoice date, or the date of payment, with the invoice date prevailing where payment follows invoicing.
E-invoicing routes B2B invoices through the GSTN Invoice Registration Portal (IRP), which returns a unique Invoice Reference Number (IRN) and embeds it in a QR code; an invoice is not valid until the IRN is generated. It is mandatory for businesses whose annual aggregate turnover (AATO) exceeds ₹5 crore in any preceding financial year (in force since 1 August 2023). A separate reporting deadline bites at the top end: from 1 April 2025, taxpayers with AATO of ₹10 crore or more must report each e-invoice — and credit and debit notes — to the IRP within 30 days, after which the portal rejects it; there is currently no such 30-day restriction below ₹10 crore. Goods Transport Agencies, passenger-transport suppliers, multiplex cinema admissions, SEZ units, government departments and OIDAR providers are outside the e-invoicing mandate.
An e-way bill, required under Section 68 and Rule 138, must accompany any consignment of goods worth more than ₹50,000 (or aggregating above that across a vehicle's invoices). Its validity runs one day per 200 km for ordinary cargo and one day per 20 km for over-dimensional cargo, with extensions capped at 360 days from generation. Two recent tightenings matter: from 1 January 2025, an e-way bill can only be generated against a document (invoice or challan) dated within 180 days, which shuts out stale or back-dated paperwork; and from 1 April 2025, two-factor authentication is mandatory for portal access. Moving goods above the threshold without a valid e-way bill attracts a penalty of ₹10,000 or the tax evaded, whichever is higher, plus the risk of detention of the goods and seizure of the vehicle.
Credit notes (Section 34, Rule 53) reduce the supplier's output liability where the original invoice over-stated value or tax, or on return, rejection or a post-supply price reduction; debit notes increase it where value or tax was understated or additional charges arise. Both must reference the original invoice, both flow through the e-invoicing system if the supplier is within the mandate, and neither can be issued after the due date for the annual return of the relevant year. Where a supplier is under the composition scheme or supplies exempt goods, a bill of supply (Rule 49) is issued instead of a tax invoice; it omits tax details but carries the basic particulars.
The Returns Calendar and the QRMP Option
The GST year runs April to March, and the filing cadence depends on turnover and on whether a taxpayer opts into the Quarterly Return, Monthly Payment (QRMP) scheme. For a regular monthly filer the core forms are these:
| Form | Frequency | Due | Purpose |
|---|---|---|---|
| GSTR-1 | Monthly | 11th of next month | Outward supplies (sales) |
| GSTR-2B | Monthly, auto-drafted | ~11th | Statement of ITC available from suppliers' GSTR-1 |
| GSTR-3B | Monthly | 20th of next month | Summary return; tax payable and ITC availed |
| GSTR-9 | Annual | 31 December of next year | Annual consolidated return (mandatory above ₹2 crore AATO) |
| GSTR-9C | Annual | 31 December of next year | Reconciliation statement (mandatory above ₹5 crore AATO; now self-certified) |
QRMP is an elective scheme for taxpayers with AATO up to ₹5 crore in both the preceding and current year. Under it, GSTR-1 and GSTR-3B are filed quarterly, but tax is still paid monthly by challan (PMT-06); the monthly payment is not refundable and any excess is adjusted in the next quarter's GSTR-3B. Opt-in and opt-out are permitted within fixed windows each quarter, and QRMP filers may use the Invoice Furnishing Facility (IFF) to push invoices to the portal between quarterly returns. Beyond these, the regime has form-specific returns: GSTR-4 (composition, annual, due 30 June), GSTR-5 and 5A (non-residents and OIDAR), GSTR-6 (input service distributors), and GSTR-7 and 8 (TDS and TCS, due the 10th).
GSTR-2B deserves particular attention because it drives input tax credit. It is auto-populated from suppliers' GSTR-1 filings and shows the credit a taxpayer is eligible to claim. It requires no action in itself, but it must be reconciled against the purchase register before GSTR-3B is filed; passive acceptance is not a defence, so a taxpayer must actively reject entries for goods not received or wrongly invoiced. The annual returns then tie the year together: GSTR-9 consolidates all supplies, ITC and tax paid and must reconcile to the books, while GSTR-9C reconciles the GSTR-1, GSTR-2A/2B, purchase register and GSTR-3B data. One of the notable GST 2.0 simplifications is that GSTR-9C no longer requires a chartered accountant's audit — it is now self-certified, and businesses with AATO up to ₹2 crore are exempt from GSTR-9 altogether.
Input Tax Credit: Section 16 Conditions and Section 17(5) Blocks
Input tax credit is the mechanism that makes GST a value-addition tax rather than a cascading one, and it is also the single largest source of compliance difficulty. Section 16 sets the conditions for availing credit. A registered person may claim ITC only where the credit rests on a valid tax invoice or debit note from a registered supplier; the goods or services are used, or intended to be used, for making taxable supplies (including zero-rated exports and SEZ supplies); the goods have been received; and the credit is not otherwise excluded. Credit is denied during any period of suspended registration. And under Rule 37A, if the supplier has not paid the tax underlying an invoice to the exchequer by 30 September of the following year, the recipient must reverse the credit (by 30 November).
Two time limits run in parallel. Section 16(4) imposes a hard cut-off: no ITC can be availed after two years from the date of the invoice. Rule 36(4) adds a procedural window — credit must be taken in the GSTR-3B for the tax period to which the invoice relates or in one of the next three consecutive periods. In practice the Rule 36(4) window is the operative constraint: credit not claimed within roughly four months of the invoice is lost even though the two-year outer limit has not expired.
Section 17(5) lists "blocked credits" — inputs on which ITC is unavailable regardless of actual business use. The principal categories are motor vehicles for passenger transport (with narrow exceptions for onward supply, dealer inventory or goods transport); passenger transport services for personal use; club, gym and sports memberships; food, beverages and outdoor catering; beauty treatment and cosmetic or plastic surgery; life and health insurance and rent-a-cab, save in prescribed circumstances; and goods used for free samples or given as gifts. The exceptions are generally limited to cases where the blocked category is itself supplied as a taxable output. The effect is absolute — GST paid on, say, a health-club membership simply cannot be recovered as credit.
Where inputs serve both taxable and exempt (or non-business) purposes, the credit must be apportioned. Rule 42 governs inputs and input services: credit attributable exclusively to personal use, to exempt supplies, or to blocked categories is reversed in full, and the residual "common credit" is then apportioned by the ratio of exempt supplies to total State turnover, with a further deemed 5% reversal for non-business use. Rule 43 applies the same logic to capital goods, spread over the asset's useful life, with re-apportionment if the taxable-to-exempt mix shifts. These reversals are not one-off calculations; they must be worked and reported month by month in Table 4B of GSTR-3B, which separately captures Section 17(5) and Rule 42/43 reversals, Rule 37 and 37A reversals, and time-limitation reversals.
Reconciliation: Where Mismatches Come From
Three reconciliations run at different cadences, and timing differences are the recurring cause of mismatch across all of them. The first is monthly, between GSTR-1 (outward supplies reported) and GSTR-3B (the summary and tax payable); divergence usually signals a data-entry error or an amendment or credit note straddling periods. The second is also monthly, between GSTR-2B and the purchase register: each line must be checked against goods actually received and against the supplier's GSTIN, HSN and rate, with genuine discrepancies routed back to the supplier for a correction or credit note, and only correctly invoiced, actually-received entries claimed in GSTR-3B. Common GSTR-2B problems include a supplier filing against the wrong buyer GSTIN, treating a registered buyer as "unregistered", or amending its GSTR-1 after the fact.
The third is annual, in GSTR-9 and (above ₹5 crore) GSTR-9C, and it must square the returns against the books: total outward supplies against revenue, inward supplies against purchases, ITC availed across the year's GSTR-3B filings against the GSTR-2A/2B record, and tax paid against the cash book. Where ITC per books exceeds ITC per GSTR-2B, the gap typically reflects invoices a supplier has not yet filed, a supplier's later amendment, or goods not in fact received; the reverse gap points to supplies received but not invoiced, or credit claimed and then reversed. The failure points are predictable: credit notes not matched to their originals, invoices and goods landing in different periods, a mix of e-invoiced and manual suppliers creating timing lags, multi-State operations generating a separate GSTR-2B per State, job-work goods sent and returned, and imports where the credit trail depends on the supplier's filing. Unexplained variances at the annual stage are what draw the attention of a tax officer.
Interest, Late Fees, Penalties and Audit
Late payment of tax attracts interest under Section 50 at 18% per annum, accruing daily from the due date with no grace period, across every form of delayed tax. Late filing of returns attracts a separate late fee under Section 47 — ₹50 per day where there is a tax liability and ₹20 per day where there is none (split equally between CGST and SGST), capped at ₹5,000 for the monthly and quarterly returns; for GSTR-9 and 9C the fee is ₹100 per day per Act, capped at 0.25% of State turnover.
Beyond fees, Section 122 empowers officers to levy penalties directly, without waiting for prosecution, for a range of contraventions — suppressing turnover or inflating ITC, issuing invoices without an underlying supply or against another's GSTIN, tax evasion (a penalty of 10% of the tax evaded, minimum ₹10,000), wrongly claiming blocked credit, failing to generate a mandatory e-invoice, and moving goods without a valid e-way bill. Section 125 provides a lower residual penalty for incorrect information not involving evasion intent, and Section 132 reserves imprisonment of up to five years for the most serious offences, such as wilful evasion above ₹5 crore or large-scale fake invoicing.
The enforcement architecture escalates through several stages. Section 61 allows scrutiny of a return, typically risk-based and fact-finding, carrying no penalty of itself unless it uncovers fraud or evasion. Section 65 authorises a departmental audit of books and records, which can span multiple tax periods at once, and Section 66 permits a special audit by a chartered accountant where the general audit throws up red flags. If short payment or wrongful credit is established, Section 73 (and, for fraud cases, Section 74) drives demand and recovery: a notice quantifying the deficiency, 30 days to respond, an adjudication order, 18% interest running from the original due date, and — failing payment — recovery by attachment of bank accounts, property and business assets, adjustment against refunds or future liability, or seizure of goods in transit.
The Composition Scheme
Section 10 offers an optional, simplified regime for small businesses that trades away input tax credit for a low flat rate on turnover. It is open to suppliers of goods with AATO up to ₹1.5 crore and to suppliers of services with AATO up to ₹50 lakh, and the applicant must already be registered. Manufacturers of certain goods, input service distributors, non-resident and casual taxable persons, and suppliers under Section 9(5) are excluded. The rate is a fixed percentage of turnover rather than a per-invoice charge: 1% for goods (reduced from 2% on 1 April 2022), 5% for service suppliers, and 5% for restaurant services.
The trade-offs are substantial. A composition dealer cannot claim any input tax credit on its purchases, cannot make inter-State supplies (the scheme is intra-State only), and issues a bill of supply rather than a tax invoice — which means its buyers cannot claim credit either. Filing is light: a single annual GSTR-4 due by 30 June, with no monthly GSTR-3B and no e-invoicing. For a business with modest input costs the arithmetic is attractive; for one with significant recoverable GST on inputs, the loss of credit can make the flat rate more expensive than the standard regime, and crossing the turnover ceiling disqualifies the dealer mid-year.
What GST 2.0 Changed
Read together, the September 2025 reforms pull in two directions — simplifying structure while tightening enforcement. On simplification: the rate slabs consolidated to 0%, 5%, 18% and 40%, with new schedules for the special rates (3% gold, 0.25% rough diamonds, 1.5% cut and polished); GSTR-9C shed its CA-audit requirement in favour of self-certification; GSTR-9 was waived below ₹2 crore; and e-invoices now auto-populate the buyer's GSTR-2B, cutting manual reconciliation. On tightening: the e-invoicing threshold sits at ₹5 crore with a 30-day IRP reporting deadline above ₹10 crore; e-way bills are confined to documents under 180 days old; two-factor authentication is compulsory across the portals; and Rule 37A reversals for suppliers who fail to pay tax are being enforced more closely, with the Delhi tax department issuing a March 2025 instruction on proper segregation of Section 17(5) and other reversals in GSTR-3B. The 18% interest rate under Section 50 is unchanged. Several 2024–2025 notifications carry these changes — among them Notification 15/2025 (GSTR-9 exemption below ₹2 crore), Notification 16/2025 (self-certified GSTR-9C) and Notification 20/2024 (revised e-invoicing rules).
Practical Takeaways
The framework rewards discipline on a handful of recurring pressure points rather than heroics at year-end.
- Treat the returns calendar as fixed dates: GSTR-1 by the 11th and GSTR-3B by the 20th for monthly filers, or the QRMP quarterly returns with monthly PMT-06 payments; late fees accrue daily and interest runs at 18% from the due date.
- Reconcile GSTR-2B against the purchase register every month and actively reject entries for goods not received or mis-invoiced — claim ITC only on what is correctly invoiced and actually received.
- Screen every input against Section 17(5) before claiming credit, verify the supplier's GSTIN and registration, and respect both the two-year outer limit and the tighter Rule 36(4) claim window.
- Work Rule 42/43 apportionment monthly where inputs are mixed-use, and report all reversals in Table 4B of GSTR-3B so the annual reconciliation holds.
- Confirm e-invoicing applicability against the ₹5 crore threshold and, above ₹10 crore, report to the IRP within 30 days; keep e-way bill documents within the 180-day window.
- Weigh the composition scheme by input intensity, not just headline rate — the loss of credit, the intra-State-only restriction and buyers' inability to claim credit can outweigh the flat 1% or 5%.
- Because GST is amended frequently, verify any time-sensitive threshold, rate or deadline against current CBIC and GST portal notifications; state-level variations (for example, intra-State e-way bill thresholds) must be checked separately.
Key Authorities
- Central Goods and Services Tax Act, 2017 — Sections 2, 7, 15, 16, 17(5), 22–24, 31, 34, 47, 50, 61, 65, 66, 68, 73, 74, 122, 125, 132; the foundational levy, ITC, invoicing, penalty and audit provisions. Source
- CGST Rules, 2017 — Rules 36(4), 42, 43, 46, 47, 49, 53, 138; ITC apportionment and reversal, invoicing particulars and e-way bills. Source
- GSTN Advisory dated 27 March 2025 — 30-day IRP reporting deadline for AATO ₹10 crore and above. Source
- Notification 15/2025-Central Tax — GSTR-9 exemption for AATO up to ₹2 crore; Notification 16/2025-Central Tax — self-certified GSTR-9C without CA audit; Notification 20/2024-Central Tax — revised e-invoicing rules.
- ClearTax, "GST Rates in India 2026" and "GST Calendar 2026-27" — post-GST 2.0 rate slabs and the filing calendar. Source
- Telangana GST Handbook on Interest, Late Fee and Penalties (December 2025) — interest, late-fee and Section 122 penalty structure. Source
This analysis reflects the law as at July 2026. It is published for general information and does not constitute legal advice.