GST Overhaul from 1 October 2025: A Complete Guide to the New Return, ITC & Compliance Framework

With effect from 1st October 2025, the Indian GST regime will undergo one of its most far-reaching operational shifts since 2017. The government has used these reforms to close long-standing gaps, reduce disputes, and align statutory provisions with system (GST Portal).

These changes are not cosmetic; they fundamentally alter how businesses must handle ITC, credit notes, returns, compliance controls, and even supply-chain monitoring. This blog provides a comprehensive, practitioner-friendly explanation of what is changing and what you must prepare for immediately.

The reforms effective from 1^st October 2025 represent a decisive shift in India’s GST architecture. The new IMS-driven regime strengthens transparency and accountability between suppliers and recipients.

With the new IMS, semi-automated 2B, credit-note alignment, Track & Trace, invoice-wise TDS, and stricter appeal rules, businesses must adopt:

• STRONGER CONTROLS,
• TECHNOLOGY-ASSISTED RECONCILIATION,
• PROACTIVE SUPPLIER COORDINATION, AND
• DISCIPLINED MONTHLY REVIEWS.

These measures may seem demanding initially, but the long-term benefits—reduced mismatches, fewer disputes, and more accurate tax reporting—will significantly strengthen compliance and confidence in the GST framework.

Legal Basis & Notifications

• Notification No. 16/2025 – Central Tax, dated 17 September 2025,
• bringing specific provisions of the Finance Act, 2025 into force from 1 October 2025.

These amendments impact:

• return filing mechanisms,
• input tax credit (ITC) governance,
• credit/debit note rules,
• penalties and appeal procedures, and
• new digital controls like Track & Trace Mechanism (TTM).

The GST portal has also issued an official GSTN Advisory.

1. Major Changes in the Return & ITC Regime

1.1 Amendment to Section 38 – From “Auto-Generated” to “Statement”

Effective 01.10.2025, the term “Auto-Generated Statement” in Section 38 is replaced with the simpler term “Statement.”

This signals a new reality:

• GSTR-2B will no longer be a fully passive, system-generated static document.
• It becomes recipient-action driven, where actions taken in IMS will influence the final 2B.

However, the latest GSTN advisory (8 October 2025) clarifies an important continuity:

GSTR-2B will still be automatically generated on the 14th of every month.
Recipients can regenerate the 2B after taking actions in IMS until filing GSTR-3B.

This evolution shifts GSTR-2B from an automated snapshot to a semi-automated, review-based compliance tool.

1.2 Invoice Management System (IMS): Central Pillar of GST 2.0

IMS becomes the core compliance gatekeeper for all inward supplies.

Key Enhancements from October 2025

a) Buyer Remark Feature

Recipients can now add remarks when taking any action:

• Accept – ITC eligible
• Reject – supplier must amend
• Pending – ITC cannot be taken yet

This leads to better:

• audit trails,
• inter-party communication,
• reconciliation evidence,
• dispute resolution.

b) Clarification on GSTR-2B Generation

Even with IMS actions:

✔ 2B still auto-generates on the 14th
✔ 2B can be regenerated after modifying actions
✔ ITC auto-population into 3B continues unchanged

c) Deemed Acceptance

If no action is taken before 14th:

➡️ Invoices become “deemed accepted.”
Recipients can still revise actions before filing 3B, but reconciliation becomes more time-sensitive.

IMS thus shifts taxpayers from passive reporting to active data management—a deliberate move to improve accuracy and minimize departmental disputes.

1.3 New Rules for Credit Notes / Debit Notes – Section 34(2)

The amended Section 34(2) introduces a strict two-step validation:

Supplier cannot reduce output tax liability unless:

1. The recipient has reversed ITC (if availed earlier), and
2. The supplier has evidence of such reversal.

This closes the long-standing mismatch between:

• supplier-side credit notes adjustments, and
• recipient-side ITC reversal.

Result:
➡️ Perfect alignment of tax positions
➡️ Reduction of litigable mismatches

The GSTN advisory (8 October 2025) further clarifies:

• Recipients may keep a credit note pending for one tax period
• Once accepted, they need to reverse ITC to the extent availed
• Excess/unused amounts cannot be arbitrarily reversed

1.4 Track & Trace Mechanism (TTM) for Specified Goods

A new legal framework under Section 148A enables the government to introduce Track & Trace requirements for high-risk or revenue-sensitive goods.

Examples expected (based on policy trends):

• tobacco products
• pharmaceuticals
• high-value machinery
• luxury/controlled consumer goods

The mechanism may include:

• serialization,
• QR-tagging,
• digital movement records,
• real-time validation.

Penalty: Section 122B

Non-compliance attracts:

➡️ ₹1,00,000 OR 10% of tax payable,
whichever is higher.

A strict enforcement tool aimed at curbing evasion at source.

1.5 Tougher Appeal Requirements – Mandatory Pre-Deposit for Penalty Appeals

For penalty-only orders (no tax liability):

➡️ Mandatory 10% pre-deposit of the penalty is required to file an appeal.

This discourages:

• frivolous appeals,
• delaying tactics,
• misuse of appellate pipeline.

Combined with Section 122B, this creates a tighter enforcement environment.

1.6 Invoice-Wise Reporting in GSTR-7 (TDS Returns)

From October 2025, TDS deductor’s must file:

✔ Invoice-wise TDS details, not consolidated reports.

Benefits:

• better matching of supplier TDS credits,
• reduced mismatches in GSTR-2A/2B,
• cleaner reconciliation for government departments, PSUs, EPC contractors, etc.

2. GSTN Clarifications – Advisory Dated 8 October 2025

To prevent misinterpretation, the GSTN issued a detailed clarification. Key points:

✔ No change in ITC auto-population into GSTR-3B

Even with IMS actions, the system auto-maps eligible ITC.

✔ GSTR-2B continues to auto-generate on 14th

The 2B timeline remains unchanged.

✔ Regeneration allowed before filing 3B

Taxpayers can accept/reject/pending invoices in IMS and regenerate the 2B for final filing.

✔ Credit Note Flexibility

Recipients may:

• hold a credit note for one tax period,
• reverse ITC only to the extent availed,
• align reversals with acceptance.

This removes ambiguity and ensures uniformity.

3. Historical vs. New Workflow for GSTR-2B

Before October 2025 (Historical)

• Fully auto-generated, no taxpayer control
• Invoices included purely based on supplier GSTR-1
• ITC decisions were mainly post-facto

After October 2025 (New System)

• Still auto-generated initially
• But final content is influenced by IMS actions
• Recipients can “Accept,” “Reject,” “Keep Pending,” and regenerate
• GSTR-2B becomes a semi-curated document

This is a major compliance upgrade—a shift from passive viewing to active validation.

PLAN OF ACTION:

To ensure a smooth transition, businesses must PLAN THEIR ACTIONS AS BELOW:

1. Train the finance/GST team on IMS workflows

How to:

• accept/reject/pending invoices
• add remarks
• regenerate 2B
• handle mismatches

2. Update ERP / Accounting Software

Ensure it supports:

• invoice-level IMS actions
• reconciliation dashboards
• Section 34(2) credit note mapping
• Track & Trace integration

3. Strengthen inward supply reconciliation

Perform invoice-level checks weekly instead of monthly.

4. Improve supplier communication discipline

Suppliers must file:

• timely GSTR-1 / IFF / 1A
• corrected invoices
• accurate amendments

5. Review historical credit note practices

Align old workflows with Section 34(2) requirements.

6. Monitor official portal FAQs & circulars

Many edge-case clarifications will be issued over the next 3–6 months.

7. Seek professional legal/tax advice for complex chains

Especially for exporters, SEZ units, developers, EPC contractors, pharma/logistics companies, and multi-branch entities.

https://tutorial.gst.gov.in/downloads/news/reative_advisory_on_boe_in_ims_final_30th_october_2025.pdf

 For any details or training session please contact us.