Who Keeps the Rate explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
On 22 September 2025 the tax on a great many goods fell. On the same day, two suppliers with identical products and identical customers ended up in opposite commercial positions — because one contract said "price plus GST at applicable rates" and the other said "₹118 inclusive of GST".
The first repriced itself. The second did not.
A GST-exclusive contract passes a rate change straight through to the customer — the base price is untouched and the tax line simply changes. A GST-inclusive contract does not: the total stays the same, so a rate cut increases the supplier's realisation and a rate rise reduces it. Where the contract is silent, section 64A of the Sale of Goods Act, 1930 gives a statutory default for goods, and a change-in-law clause usually governs works and services contracts. Long-term and government contracts almost always carry an express mechanism.
The two drafting styles, and what each does
"₹100 plus GST as applicable." The consideration is ₹100. GST is charged on it at whatever rate is in force at the time of supply. When the rate goes 18% → 5%, the invoice goes from ₹118 to ₹105. The customer gets the benefit; the supplier's realisation is unchanged.
"₹118 inclusive of GST." The consideration is ₹118 all-in. Under s.15 read with Rule 35, the taxable value is derived by backing tax out of the inclusive amount:
Taxable value = Inclusive amount × 100 ÷ (100 + rate)
At 18%: ₹118 × 100 ÷ 118 = ₹100 value, ₹18 tax. At 5%: ₹118 × 100 ÷ 105 = ₹112.38 value, ₹5.62 tax.
The supplier's realisation rises from ₹100 to ₹112.38. The customer pays the same. Nothing in GST law requires the supplier to hand the difference over.
Section 64A of the Sale of Goods Act
Where a contract for the sale of goods is silent on who bears a tax change, s.64A supplies a default. In substance:
- Where a tax is imposed or increased after the contract is made, the seller may add the increase to the contract price and recover it.
- Where a tax is decreased or remitted, the buyer may deduct the decrease from the contract price.
The section applies unless a different intention appears from the terms of the contract. That last clause does most of the work: an express inclusive-price clause is a different intention, and displaces the default.
Section 64A is about goods. For services and works contracts there is no equivalent statutory default, which is why the change-in-law clause matters so much there.
Change-in-law clauses
Long-term supply, works, EPC, facility management and government contracts usually carry one. The typical structure:
- a definition of change in law that includes the introduction, amendment or repeal of a tax or a change in rate;
- a notification obligation — the affected party must give notice within a stated period, often 30 days;
- a compensation mechanism — adjustment to the contract price, restoring the parties to the economic position they would have been in;
- sometimes a materiality threshold below which no adjustment happens.
Two traps in practice.
The notice period is a condition, not a formality. A supplier who quietly kept the benefit of a rate cut for six months and then faced a customer's claim will find the customer's notice period argument is symmetrical — but so is the supplier's failure to notify a rate rise.
"Restore to the same economic position" cuts both ways. A clause drafted to protect the contractor from tax increases will, on its own words, also require the contractor to pass on a decrease.
Government and public sector contracts
Government tenders overwhelmingly quote exclusive of GST, with a standard clause providing that any statutory variation is to the account of the employer. In those contracts, the 2025 rate cut flowed straight to the government buyer.
Where a works contract was priced inclusive — common in older lump-sum contracts — public sector employers have generally sought recovery of the differential, relying on the change-in-law clause. The contractor's counter is usually that the clause was drafted for increases and that the cut is offset by an inverted duty effect on inputs that did not fall. That argument works only if the numbers actually show it. ITC accumulation after the rate cuts →
Anti-profiteering: mostly a historical question now
Section 171 required a supplier to pass the benefit of a rate reduction or additional ITC to the recipient by a commensurate reduction in prices. The Anti-Profiteering Authority was wound down and its functions moved to the Competition Commission of India, and the Government subsequently notified an end date after which no new anti-profiteering applications are examined.
The practical position for the September 2025 cuts: the statutory obligation exists in s.171, but the enforcement machinery for new complaints is closed. The exposure that remains is contractual and commercial, not regulatory — a customer's claim under the contract, not a CCI proceeding.
That is a reason to settle the question in the contract rather than assume no one will ask.
What to do
- Inventory your contracts by pricing convention — exclusive, inclusive, or silent. Most businesses have all three.
- For inclusive contracts, decide deliberately whether to pass the benefit on. There may be a commercial reason not to; there is rarely a good reason not to have decided.
- Check the change-in-law notice periods you may already have missed.
- For silent goods contracts, apply s.64A rather than arguing from first principles.
- Update standard templates to a clear exclusive-of-tax formulation with an express change-in-law clause covering movement in both directions.
- Where a rate cut coincides with inverted duty, quantify the net effect before conceding a full pass-through.
Key takeaways
- Exclusive contracts pass a rate change through automatically; inclusive contracts do not.
- Under an inclusive contract, a rate cut increases the supplier's realisation by the difference.
- Section 64A of the Sale of Goods Act, 1930 is the default for goods, displaced by a contrary intention.
- Change-in-law clauses govern services and works contracts, and usually work in both directions.
- Notice periods in those clauses are conditions worth diarising.
- Anti-profiteering enforcement for new complaints is closed; the live risk is contractual.
Read next
- GST 2.0: The Two-Rate Structure Explained
- Section 14: Which Rate Applies Across a Rate Change
- ITC Accumulation After GST 2.0 Rate Cuts
- Anti-Profiteering Under GST
Disclaimer: Positions stated as on 5 September 2026. Contractual outcomes depend on the actual wording; this is general guidance, not advice on a specific contract.
Key Facts About Who Keeps the Rate
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
Does a GST rate cut automatically reduce my contract price?
Only if the contract is GST-exclusive. If it is inclusive of GST, the total stays the same and the reduction accrues to the supplier unless the contract says otherwise.
How is the taxable value computed under a GST-inclusive price?
Taxable value = inclusive amount × 100 ÷ (100 + rate). At 5%, ₹118 inclusive gives ₹112.38 value and ₹5.62 tax.
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Who Keeps the Rate: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.