GST Rate Change: Contracts and Transitional Stock

For supplies spanning the 22 September 2025 GST rate change, the applicable rate is determined by time-of-supply rules — which look at the interaction of the supply date, invoice date and payment date — not by the invoice date alone. Contracts, transitional stock and credit notes each need separate treatment.

Determining the applicable rate

Section 14 of the CGST Act works in two limbs, and the first step is to establish which limb applies: was the supply itself made before the rate change, or after it?

Within the relevant limb, the time of supply then turns on where the invoice and the payment fall relative to the change date. Broadly, where the supply is on one side of the change and both the invoice and the payment fall on the other, the time of supply follows the invoice-and-payment side; where the invoice and the payment are split either side of the change, the time of supply is the earlier of those two dates. A proviso governs when payment is treated as received where the amount is credited to the bank account after the rate change.

The rule has to be applied as drafted, testing each of the three dates against the change date. Rules of thumb about “whichever way most of the events fall” will give the wrong answer in several of the permutations, so work through the provision rather than approximating it.

Contracts spanning the change

GST-inclusive pricing. Where a contract states a single inclusive price, a rate reduction increases the supplier’s net realisation unless the contract requires adjustment. Recipients will often argue the benefit is theirs. The answer lies in the tax variation clause, and where none exists, in negotiation.

GST-exclusive pricing. Cleaner — the tax component simply changes and the base price is unaffected.

Long-term and recurring contracts. Annual maintenance contracts, works contracts, subscription arrangements and leases spanning the change need each periodic supply tested against the time-of-supply rule rather than treated uniformly.

Works contracts deserve particular attention because milestone billing and retention amounts routinely cause the supply, invoice and payment dates to diverge.

Transitional stock

Stock held at the change date does not itself trigger an adjustment — the rate applies at the time of the outward supply. Credit already availed on inputs at the earlier rate is generally not disturbed by a subsequent change in the output rate.

Where an output moved from taxable to exempt, however, credit reversal obligations do arise. That is a materially different situation from a rate reduction and should be assessed separately.

Credit notes and returns

A credit note for a supply made before the change carries the rate applicable to the original supply. Goods returned after the change but supplied before it follow the original rate. The constraint is the time limit within which a credit note with tax adjustment may be issued — beyond it, the tax cannot be adjusted even where commercial credit is given.

Anti-profiteering

Where rates are reduced, the expectation is that the benefit reaches the recipient through a commensurate price reduction. Businesses that absorbed reductions into margin should document their pricing decisions and the commercial basis for them.

Related reading

• the September 2025 slab change — New GST Slabs 2026: 5%, 18% and 40% Explained
• credit conditions and reversal — GST Input Tax Credit: Conditions, Blocked Credits and Disputes

Sources

• Section 14, CGST Act, 2017 — cbic.gov.in