GST 2.0 began as a rate story and is becoming a compliance story. For small businesses, the second phase matters more.
Phase 1: Rates (22nd September 2025)
Following the 56th GST Council, GST moved from four main slabs to two, 5% and 18%, with 40% for luxury and sin goods. Registration was also simplified: from 1st November 2025, eligible low-risk applicants can opt for registration within three working days.
Phase 2: Compliance (57th Council, 8th October 2026)
The Council made no rate changes. The recommendations focus on process:
- Enforcement: omitting the arrest power in s. 69, a higher prosecution threshold (₹5 crore), lower general penalties, and a ₹10,000 floor for show-cause notices.
- Refunds: inverted-duty refund of input-services credit from 1st November 2026 and of capital goods credit from 1st April 2027 (spread over 60 months). Eligible excess cash ledger refunds would be sanctioned automatically.
- Returns: an annual return with quarterly payments for B2C-only taxpayers up to ₹5 crore, a late fee waiver for those up to ₹5 crore who file by month-end, and a mismatch-correction mechanism from the April 2027 return period.
- Registration: a simplified route for small e-commerce sellers.
- Deferred: the s. 16(2)(c) buyer-protection proposal and the motor vehicle credit relaxation.
These are recommendations. Most need amendments to the CGST Act, rules or notifications.
Key dates for MSMEs
| Date | What |
|---|---|
| 30 November 2026 | Last date to claim ITC on FY 2025-26 invoices (s. 16(4)) |
| 1 November 2026 | Input-services refund eligibility (recommended) |
| 1 April 2027 | Capital goods refund eligibility (recommended) |
| April 2027 | Mismatch correction mechanism (recommended) |
What to do now
- Reconcile before 30 November. Match purchase invoices against GSTR-2B and chase suppliers for missing ones.
- Check your slab position. Review whether the 5% and 18% structure has created an inverted duty position, since refunds are the main relief.
- Don't treat recommendations as law. Plan for them, but wait for notifications.
- Keep the paper trail tight. Faster refunds and fewer notices reward businesses whose records reconcile.
- Watch the QRMP/annual-return proposal. Small B2C businesses could shift to a lighter filing pattern.
Bottom line
The cost of GST for a small business is increasingly in compliance, not rates. The next twelve months will reward those with clean reconciliations.
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