GST 2025 Updates: Lower Tax Rates and Loyalty Program Benefits

The 2025 GST reforms represent a major overhaul of India’s goods and services tax structure, simplifying the system to three primary slabs: 5%, 18%, and 40% for luxury and sin goods.

These changes have important implications for businesses and loyalty programs, particularly in how rewards are provided and taxed. TDS provisions like Section 194R remain relevant, affecting the design and compliance aspects of loyalty schemes.

1.  OVERVIEW OF KEY GST REFORMS

• Simplified Tax Slabs: The GST Council consolidated the tax structure to 5%, 18%, and 40% for select goods, replacing the previous 12% and 28% rates.
• Rate Reductions: Consumer goods, including electronics, packaged foods, and small vehicles, now attract lower rates—often moving from 28% or 12% down to 18% or 5%.
• Input Tax Credit (ITC) Changes: From April 2025, companies must use the Input Service Distributor (ISD) mechanism to claim ITC, requiring altered compliance and more accurate allocation of credits.
• Broader Objectives: The reforms aim to simplify compliance, improve cash flow, boost consumer purchasing power, and enable MSMEs to invest more in branding, loyalty, and marketing.

2.  IMPACT ON LOYALTY PROGRAM ECONOMICS

• Lower Reward Cost: Decreased GST on reward items enables businesses to provide higher-value or more frequent rewards to participants without dramatically increasing program costs.
  
• Budget Reallocation: Saved tax outflows can be redirected into marketing, technology, or expanding loyalty features and experiences, making programs more competitive.
• Boosted Participation: Lower costs and easier compliance encourage both businesses and participants—retailers, distributors, and consumers to engage more actively in loyalty offerings.

3. TDS 194R: ONGOING IMPLICATIONS FOR LOYALTY PROGRAMS

• No Change in Applicability: Despite GST reforms, Section 194R still applies: a 10% TDS must be deducted on any benefit or perquisite (cash or kind) exceeding ₹20,000 per financial year arising in business or profession.
• Loyalty Program Impact: When loyalty program rewards cross this threshold, companies must deduct TDS before providing the benefit, maintain detailed records, and report accordingly.
• Compliance Burden: While GST compliance is now simplified, businesses must remain vigilant about TDS, especially in B2B programs involving dealers, distributors, or non-cash rewards.

4. INPUTTAXCREDITIMPROVEMENTSAND COMPLIANCE

• ITC Flow: The mandatoryISD mechanism will standardize and improve ITC allocation but requires companies with multiple GST registrations to update processes, get separate ISD registrations, and file new returns (GSTR-6).
  
• Rewards Structure: Businesses should review how reward expenses are invoiced and shared internally to ensure correct credit allocation and maintain compliance.
• Cash Flow Improvements: More accurate and efficient credit management supports cash flow, making it easier for businesses to maintain and expand loyalty initiatives.

5.  SECTOR-SPECIFIC IMPACTS AND OPPORTUNITIES

• FMCG/Consumer Goods: Lower GST on daily essentials allows brands to offer more valuable rewards, improve dealer engagement, and build stronger loyalty with end customers.
• Automotive: Lower GST on EVs and small cars, but higher on luxury vehicles. Dealers and OEMs can fine-tune loyalty programs to emphasize lower-taxed product lines.
• MSMEs/Retail: Simplified GST and improved cash flow make it easier for smaller businesses to offer seasonal discounts or loyalty schemes without squeezing margins.

6.  CONCLUSION AND RECOMMENDATIONS

India’s 2025 GST reforms simplify taxation, reduce compliance costs, and provide room to enhance customer and dealer loyalty programs. However, Section 194R TDS on benefits or perquisites remains unchanged, requiring diligent compliance. Businesses should:

• Recalibrate program structures to capitalize on lower GST rates. 
• Ensure ongoing compliance with TDS regulations under Section 194R.
• Train teams and update systems for ISD and ITC allocation.
  

• Track sector-specific opportunities arising from new GST rates.
• Use tax savings to enrich loyalty offerings and drive customer and partner engagement.

By proactively adapting to the new framework, businesses can turn regulatory change into a foundation for stronger, more sustainable loyalty and growth.

7.  HOW ALMONDS AI CAN SUPPORT

• Program Recalibration: We can help you redesign loyalty schemes to optimize for new GST slabs, ensuring maximum value delivery to your dealers, distributors, and customers.
• Compliance Readiness: Our platform tracks Section 194R TDS applicability and provides automated reporting to reduce compliance burden along with ITC & ISD Alignment and updated GST workflows.
• Green Loyalty Advantage: Redirect tax savings into sustainable loyalty programs, aligning with both compliance and ESG priorities.

In short, Almonds Ai can ensure that GST 2025 reforms become a catalyst for stronger, more sustainable loyalty growth.