GST Alert: 02/2025-26
Date: 19.09.2025
Time of Supply – Deciding the Correct Tax Rate
56th GST Council meeting has changed the rate landscape for many goods and few services, these changes as we all know are effective from midnight of 22nd September 2025. This brings up the core question of how to decide the GST rate on transactions which fall in both the time periods. In any commercial transactions there are 3 major events:
- Invoice
- Supply
- Receipt of payment
In normal business scenario when Tax rates are steady, invoice date is considered to be sacrosanct for selecting which rate applies – this in technical terms is called the “Time of Supply.” But when Rate change occurs from a specified date, it becomes more important to affix exact ‘time of supply’ so that taxpayers can know what rate to charge in the invoice. Section 14 of the CGST Act prescribes certain conditions for deciding whether to tax at old rate or the new rate. We call this as the 2 by 3 rule for ease of understanding; it can simply be understood in following manner:
I. 2 by 3 Rule (Section 14 of the CGST Act):
- If any two of the 3 listed above [Supply, invoice and payment] occur after 21st Sept, tax is payable at new rate.
- If any two events occur before 22nd Sept, tax is payable at old rate.
- This alert deals gives a detailed breakdown on these aspects:
Time of Supply where Rates have changed
There could be 2 different scenarios possible going forward
Goods/Services Supplied BEFORE 22.09.2025
Invoice | Payment | GST Rate Applicability |
Before 22.09.2025 | Before 22.09.2025 | Old Rate |
After 22.09.2025 | After 22.09.2025 | New Rate |
Before 22.09.2025 | After 22.09.2025 | Old Rate |
After 22.09.2025 | Before 22.09.2025 | Old Rate |
Invoice | Payment | GST Rate Applicability |
Before 22.09.2025 | Before 22.09.2025 | Old Rate |
After 22.09.2025 | After 22.09.2025 | New Rate |
Before 22.09.2025 | After 22.09.2025 | New Rate |
After 22.09.2025 | Before 22.09.2025 | New Rate |
We all know the exact time of Invoice and Payment; question is how to interpret when goods or services have been “supplied”
Exact phrase used in section 14 is “Supplied before” and “Supplied after”.
Term ‘Supply’ has been defined in Section 7; relevant abstract is as under:
7(1) For the purposes of this Act, the expression “supply” includes—
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
If the above provision is deciphered, the common thread that comes out is that when the title over the goods or services is transferred by supplier to recipient, that process can be termed as “Supply” or “Supplied”. So if a supplier issues an invoice and with it if the ownership/title over the goods get transferred, along with the risk and reward, then it can be legally and constructively presumed that delivery of the goods has been given to the recipient even though the physical possession of those goods is still with the supplier.
In view of the above understanding, 3 transactional events discussed above can now be read as under:
- Invoice
- Transfer of title or Constructive Delivery
- Receipt of payment
II. Important issues:
- If risk and reward over the goods or services being sold get transferred on the day of Invoice, then 2 events get combined and get fulfilled on single date and rate applicable on that day will be payable.
- In case of services, if advance is received before 22.09.2025, tax must be paid at the old rate as advances for services are taxable. However, if both the supply of service and the invoice are issued after 22.09.2025, the tax becomes payable at the new rate. In such cases, tax already paid on the advance can be adjusted against the new liability.
- The date of receipt of payment shall be the date of credit in the bank account if such credit in the bank account is after four working days from the date of change in the rate of tax.
- The date of receipt of payment shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier.