Impact of GST on Wholesalers and Retailers

In this article, we will discusss about the impact of GST on wholesalers and retailers in detail. The introduction of GST 2.0 rate reset in the year 2025 has allowed many wholesalers and retailers to improve their business growth with GST rate reductions translating into price reductions. Read further as we decode the GST impact on wholesalers and retailers.

What's new

GST 2.0 rate reset has been implemented since 22nd September 2025 after recommendations at the 56th GST Council meeting:

• Several FMCG items are reclassified from 12% to 5% or nil. GST on small cars are reduced from 28% to 18%. Overall effective GST on big cars is now 40%, reduced from 50%.
• GST on Pan Masala, Gutkha, Cigarettes & Tobacco to be levied on Retail Sale Price (RSP) instead of transaction value.
• GST on Medicaments (mixed, not in retail packs)  reduced from 12% to 5%.
• GST on Medicaments (measured doses/retail packs)  reduced from 12% to 5%.
• GST on Ayurvedic, Unani, Siddha, Homoeopathic, Bio-chemic medicines ,covered under reduced GST slab of 5%.
• GST on Medical dressings (wadding, gauze, bandages, adhesive plasters, etc.) reduced from 12% to 5%.
• GST on Sewing thread of artificial filaments has been reduced from 12% to 5%.

GST 2.0 Rate Reset Impact

GST 2.0 rate reset has restructured the GST rate slabs, removing 12% and 28% slabs, with effect from 22nd September 2025. Accordingly many FMCG items and medicines are reclassified into the lower tax brackets. Even the effective rate of GST on big cars are reduced from earlier 50% (28% plus cess) to 40% (with no cess). 

Goods and Services Tax Act (GST law) has undergone significant changes very few times after its implementation in 2017. With several industry specific requests addressed during the 56th GST Council meeting and subsequent CBIC notifications, wholesalers and retailers have benefitted the most. 

Below are some key notes highlighting the immediate action items and long-term impact of GST rate restructuring on the wholesalers and retailers-

• With the rate restructuring taken place, margin and pricing must be reworked upon.
• Needs grammage-based pass-throughs at fixed price points in FMCG (Packs of Rs.5,10, or 20). It needs coordinated MRP, shelf, and scheme updates across the trade.
• Dealers with inventory procured at old, higher rates may see staggered consumer price benefits.
• Credit-note discipline and invoice-linking become critical to preserve ITC flow.
• Plan phased de-stocking before effective dates and rapid re-stocking post-reset with re-stickering. 
• Clear documentation of rate-difference adjustments to prevent disputes.
• Re-map HSN and GST rates across your ERP/POS systems for every SKU.
• Ensure delivery challans are tagged to the respective invoices and run daily exception reports for any unbilled dispatches.
• GST 2.0 rate reset enables a more predictable pricing ladders, annual trade terms, and SKU rationalisation across product categories over multi-year horizons.
• The move ensures better formalisation of trade.
• Wholesalers can consolidate networks, renegotiate better terms with logistics, and explore different markets for sales.
• Relabelling and repricing overheads will lower after the transition phase, including the reclassification litigations. 

Impact of GST on Wholesalers 

Input Tax Credit (ITC) continuity allows tax-neutral B2B pass-through, reducing cascading tax and preserving thin margins when purchase and sales invoices are correctly matched and filed.

GST has invoked a higher compliance discipline for wholesalers with need for real-time invoice reporting, HSN/rate mapping across large SKU catalogs, and tight credit-note linkage to keep downstream partners’ ITC eligible.

Formalisation pressure has increased since invoice-level traceability curbs cash-based/unnumbered sales. It has reduced scope for any tax evasion while pushing more wholesalers into the tax net.

Working capital depends on ITC/refund flow and accuracy of returns. Errors or supplier non-compliance can block ITC and create cash strain in high-velocity and low-margin categories.

Impact of GST on Retailers

ITC offsets on purchases reduce embedded tax in cost of goods, helping stabilise gross margins if suppliers issue compliant invoices and returns reconcile. 

Reduced inter-state tax arbitrage levels the playing field across locations, shifting competition toward assortment, service, and availability rather than tax-driven price gaps.

Record-keeping and audit readiness must mature: invoice accuracy at checkout, POS/ERP mapping, and documentary support for discounts, returns, and warranty replacements.

Marketplace TCS reconciliation, timing differences, and return matching increase operational workload versus purely offline operations.

Impact During Demonetisation

During demonetisation, wholesalers and retailers had gone into a panic mode. Many wholesalers, distributors, and retailers had to de-stock the inventory  and reduce the volume of goods.This destocking was triggered largely due to a steep fall in demand from the consumers. Sales of some of the FMCG companies in Q3 FY17 dropped more than 44% as compared to Q3 FY16, According to the data from Care Ratings report dated March 15, 2017.

Many of these FMCG companies had lamented that while the fall in consumer demand was limited, sales were severely impacted due to limited stock availability at retailer’s end.

Read more:
GST Revamp: Full List of New GST Rate Cheaper and Costlier Items
GST Rate Cut from 18% to 5%: ITC Reversal Under Section 18(4)