GST Reforms 2025: What Small Businesses Must Know

The newly introduced GST (Goods and Services Tax) Reform 2025 is seen as a turning point for small businesses and MSMEs across India. Announced at the 56th GST Council Meeting on 3 September 2025, these reforms aim to simplify the GST structure by reducing tax slabs, lowering compliance burden, cutting costs, and making the tax system more transparent.

The new GST structure has replaced the earlier multi-slab system with a two-tier structure of 5% and 18% GST. In this blog, we will discuss the key GST reforms introduced in 2025 and their implications on small businesses and their growth trajectory. Keep reading to learn more!

Impact of GST Reforms 2025 on Small Businesses

Small businesses often operate with lower margins, limited staff, and minimal legal or tax compliance requirements. The new GST reforms are expected to have broader impacts on the following areas:

• Cost Reduction: With lower rates on several essential goods and inputs, small businesses will see a reduced cost of goods sold.

• Pricing Competitiveness: When input costs decrease, small businesses can pass on the savings and be more competitive compared to larger firms. Also, simpler GST classification reduces confusion over pricing.
• Cash Flow Improvements: Lower compliance burden and fewer disputes over classification will improve cash flows and reduce the waiting period for refunds or input tax credits.
• Reduction in Compliance Burden: Filing, record-keeping, classification and audits for GST have now become easier. It allows businesses to focus time and resources on operations rather than compliance.
• Market Expansion: Lower GST thresholds and simplified registration can help small businesses trade across state borders more easily. Also, GST compliance is often required for doing business with certain clients, such as corporate or government tenders.
• Regulatory Clarity: With fewer slabs and clearer classifications, there is less ambiguity about which rate applies to each item, reducing the risk of penalties or litigation due to misclassification.

Major GST Reforms in 2025 

The GST Council recently authorised a broad "two-slab" system in September 2025 that has now replaced the earlier, multi-slab indirect taxation system in India.  Here are the highlights that small businesses must know:

1. Simplified Structure

• Multiple GST slabs (5%, 12%, 18%, 28%) merged and replaced with a new two core slab of 5% and 18%.
• Luxury and sin items such as tobacco, aerated drinks, and high-end automobiles will be subject to a 40% tax.
• Essential products and services, such as life-saving medicines, health insurance, and basic foods, are fully exempt from GST to make them affordable.

2. Essential Goods Moved to Lower or Nil Rate

• GST on UHT Milk has been reduced from 5% to 0%.
• Paneer/Chhena (prepackaged and labelled) is exempted from GST.
• GST on packaged butter, ghee, and dairy spreads decreased from 12-18% to 5%.
• Many domestic utility goods now fall under the 5% slab.

It reduces consumer costs while benefiting kirana stores, local dairy farmers, and household products dealers.

3. White Goods and Appliances

• Under the new reform, GST on air conditioners (ACs), televisions, refrigerators, washing machines, and similar goods has been reduced from 28% to 18%. It will make these products cheaper, boosting sales for local electronics retailers and small traders.

4. Automobiles

• GST on small cars has been reduced from 28% to 18%. This includes petrol, LPG, or CNG cars with engine capacity up to 1200 cc and length up to 4000 mm, and diesel cars with engine capacity up to 1500 cc and length up to 4000 mm.
• GST on mid-size and large cars has been increased to 40%, applicable to vehicles exceeding the small car thresholds.

It will benefit the middle class and small car dealers, while luxury buyers bear higher taxes.

5. Insurance Sector

• Life insurance and health insurance policies for individuals are now exempt from GST.
• The reform is expected to make insurance services more affordable and increase penetration, especially in Tier-2 and Tier-3 cities.
• Group or corporate life and health insurance policies are generally subject to 18% GST on the premium; however, individual policies remain fully exempt.

6. Compliance Relaxations

To ease operations for small businesses and MSMEs, compliance relief measures have also been announced.

• Businesses no longer need to match every credit note to a specific invoice, which reduces accounting complexity.
• A streamlined refund process has been implemented, with refunds promised within 7 days of application for key export-oriented sectors like textiles, chemicals, fertilisers, and pharmaceuticals.
• The GST registration process for non-risky micro and small enterprises has been expedited to just 3 days, aiming to simplify the onboarding process for new businesses.

7. Effective Date

• All these new GST rates and compliance relaxations will take effect from 22 September 2025.
• Businesses should ensure their billing systems, price lists, and accounting processes are updated by this date.

Read Also: How GST Cuts on Daily Essentials Will Boost Purchasing Power

Steps Small Business Owners Should Take Today

To leverage the new GST reforms, here is the essential checklist for small business owners:

1. Understanding Changes: Know which of your products fall under the reduced GST slabs for better planning.
2. Updating Systems: Upgrade your billing software and train your staff for the upcoming changes.
3. Recalculating Pricing: Adjust the selling prices of your products in line with new tax rates.
4. Planning for Demand: Maintain sufficient inventory of your products for higher customer demand in future.

To Conclude

GST Reforms 2025 are the most significant GST changes since 2017, providing strong support for small businesses. By simplifying compliance, reducing tax burdens, and ensuring faster refunds, the government is creating a conducive environment for small traders and entrepreneurs to grow and thrive.

As India enters this new era of taxation, it’s time for small businesses to seize the opportunity. Poonawalla Fincorp offers hassle-free business loans with same day disbursement to eligible businesses in India. Apply now for an Instant Business Loan today and get funds to leverage the GST reforms to your advantage.

Frequently Asked Questions

How do GST reforms benefit small businesses directly?
They reduce compliance costs, simplify tax filing, and make refunds faster, saving time and money for entrepreneurs.

Will small shopkeepers really benefit from reduced GST rates?
Yes, lower GST rates on essentials mean customers can buy more, increasing sales for small retailers.

Why do small enterprises need business loans during GST reforms?

Transitions after GST reforms require upgrades, inventory stocking, and cash flow management, all of which demand adequate funding.

How can Poonawalla Fincorp’s business loans help small businesses during GST reforms?
With quick approvals, flexible repayment options, and affordable rates, Poonawalla Fincorp empowers eligible small businesses with the financial resources needed to implement necessary changes.

Is it risky to take a Business Loan during GST reforms?
No, if used strategically for inventory, upgrades, or expansion, a business loan can drive growth, especially with reforms boosting demand.