Have you heard the news? The GST Council has just announced a significant rate change, effective today, September 22, 2025. The GST on medicines and several other goods has been reduced from a hefty 12% down to a more consumer-friendly 5%.
While this is fantastic news for customers, it has understandably sent ripples of concern through the retail community. The most common question we’re hearing is: “What about the stock I already purchased at the 12% GST rate? Will I lose money on it?”
It’s a valid concern. You bought high and now you have to sell low. On the surface, it looks like a clear loss.
However, we’re here to reassure you. Thanks to the robust framework of the Goods and Services Tax (GST), there is absolutely no financial loss for GST-registered businesses. Let’s break down exactly how it works.
The Core Principle: Understanding Input Tax Credit (ITC)
The magic word here is Input Tax Credit (ITC). Remember, the GST you pay on your purchases (your “input tax”) isn’t a cost to your business. It’s a credit that sits in your government ledger. You use this credit to pay off the GST you collect from your customers on sales (your “output tax”).
The rate change doesn’t make your accumulated credit disappear. It’s still yours to use.
A Real-World Example: A Chemist’s Stock
Let’s illustrate with the same example many of you are facing. Imagine you are a pharmacy owner who bought 1,000 units of a specific medicine before the rate change.
Scenario 1: The Purchase (Before September 22, at 12% GST)
You bought 1,000 units of medicine at a total price of ₹80,000. Here’s the breakdown per unit:
- Base Price: ₹71.43
- GST @ 12%: ₹8.57
- Your Purchase Price: ₹80.00
For your total purchase of 1,000 units, you paid ₹8,571.43 in GST. This amount is now available to you as Input Tax Credit (ITC).
ITC Available = ₹8,571.43
Scenario 2: The Sale (After September 22, at 5% GST)
Now, you need to sell this stock at the new, lower rate. The government has permitted affixing new MRP stickers to reflect this change.
- New MRP (inclusive of 5% GST): ₹75.00 per unit
- Total Sale Revenue (1,000 units): ₹75,000
From this sale, the GST you have collected from customers (your Output Tax) is: GST Collected=(105₹75,000)∗5=₹3,570
Output Tax Payable = ₹3,570
The Tax Adjustment: Where the “Loss” Disappears
This is the crucial part. You have an ITC of ₹8,571.43 ready to be used, but you only need to pay ₹3,570 in GST to the government.
- ITC Available: ₹8,571.43
- GST Payable on Sale: – ₹3,570.00
- Your Net Position: ₹5,001.43 (Excess ITC)
This ₹5,001.43 is not a loss! It is your money, sitting in your GST credit ledger. The government provides two clear ways to recover it.
What Can You Do with Your Excess ITC?
- Adjust It Against Other Tax Liabilities: Do you sell other products that attract GST, perhaps at 18% or 28%? You can use this excess ₹5,001.43 credit to pay the tax liability on those sales. This directly reduces your cash outflow.
- Claim a Cash Refund: The government has anticipated this situation (known as an “inverted duty structure”). Through a special transitional relief scheme, you can file Form GST RFD-01 and claim this excess ITC as a direct cash refund. To ease cash flow concerns, the process has been fast-tracked:
- 90% provisional refund (₹4,501.29 in our example) will be released within 7 days.
- The remaining balance will be credited within 60 days after verification.
Your Action Plan: A Simple Compliance Checklist
To ensure a smooth transition, here’s what you need to do:
✔️ Update MRPs: You have until December 31, 2025, to affix revised MRP stickers on your old stock. Make sure they reflect the new 5% GST rate.
✔️ Maintain Flawless Records: Keep your purchase invoices safe. Accurate record-keeping is the backbone of a successful ITC adjustment or refund claim.
✔️ File Your Returns on Time: Timely filing of your GST returns is non-negotiable. It’s the only way to declare your ITC and claim your rightful refund.
The Bottom Line
The reduction in GST rates is a positive move for the economy. While the transition might seem complex, the GST system is designed to protect your business from any financial loss. Your excess Input Tax Credit is fully secure and recoverable.
Feeling overwhelmed by the paperwork? Not sure how to file your refund claim or adjust your ITC?
The expert team at Taxcom Technologies LLP is here to help. We can guide you through MRP compliance, ITC management, and timely refund filing to ensure your business capitalizes on these changes without a hitch. Contact our GST advisory team today!
