GST 2.0 One Year On: The 5%, 18% and 40% Slabs Explained
Since 22 September 2025, most goods and services fall into two GST slabs — 5% and 18% — with 40% reserved for specified luxury and sin goods. Here's what changed, with rupee examples and invoice tips.
By BizToolsIndia Editorial Team · Published · 4 min read
Key takeaways
- The 56th GST Council meeting recommended the rate rationalisation, effective 22 September 2025.
- Principal slabs are now 5% and 18%; a 40% rate applies to specified luxury and sin goods.
- Special rates of 3% (gold, silver, jewellery) and 0.25% (rough precious stones) continue.
- Most items earlier taxed at 12% moved to 5%, and most at 28% moved to 18%.
- Compensation cess was discontinued for all items except tobacco and related products.
What changed on 22 September 2025
Before the change, GST had four main slabs — 5%, 12%, 18% and 28% — plus compensation cess on many 28% items. The GST Council, at its 56th meeting in September 2025, recommended collapsing this into a simpler structure. The new rates took effect on 22 September 2025, which is why the change is often called “GST 2.0”.
| Rate | What it covers (examples, not exhaustive) |
|---|---|
| 0% / exempt | Many unprocessed foods, individual life and health insurance, specified essentials |
| 5% | Merit-rate goods and services — most items earlier taxed at 12% |
| 18% | Standard rate for most goods and services — including most items earlier at 28% |
| 40% | Specified luxury and sin goods |
| 3% | Gold, silver and jewellery |
| 0.25% | Rough precious and semi-precious stones |
Important
What it means for prices: two worked examples
| Old rate | New rate | Customer pays | |
|---|---|---|---|
| Item worth ₹1,000 moved from 12% to 5% | GST ₹120 → total ₹1,120 | GST ₹50 → total ₹1,050 | ₹70 less |
| Appliance worth ₹40,000 moved from 28% to 18% | GST ₹11,200 → total ₹51,200 | GST ₹7,200 → total ₹47,200 | ₹4,000 less |
If you quote prices inclusive of GST, the maths works the other way round: remove the GST first, then apply the new rate. On an MRP of ₹1,120 at the old 12% rate, the taxable value is ₹1,000; at 5% the GST-inclusive price becomes ₹1,050. The Reverse GST Calculator and the GST Calculator do both directions.
The 40% rate and what happened to cess
Earlier, many luxury and sin goods paid 28% GST plus a compensation cess, which varied by product. The Council merged most of this into a single 40% rate for specified goods, and discontinued compensation cess from 22 September 2025 on all items except tobacco and related products. Those continue under the earlier structure until the Council decides otherwise.
What small businesses should check on their invoices
- Update your item master. Every product and service in your billing software should carry its current rate. Stale 12% or 28% entries are the most common mistake a year on.
- Use the right rate for the date. Invoices for supplies on or after 22 September 2025 use the new rates. Credit and debit notes for earlier invoices generally follow the rate on the original invoice.
- Re-check GST-inclusive prices. If you print MRP or list prices including GST, recalculate them from the taxable value.
- Split tax correctly. Intra-state supplies show CGST + SGST (half each); inter-state supplies show IGST. The CGST SGST IGST Calculator shows the split.
- Review input tax credit. Where your purchase rate and sales rate changed differently, your credit and cash position may shift. Speak to your accountant if credit is building up.
Our GST Invoice Generator uses the current rate list and keeps 12% and 28% only as clearly labelled options for older documents.
Frequently asked questions
Are the 12% and 28% GST slabs abolished?
They were removed as principal slabs from 22 September 2025. Most items moved to 5% or 18%. Some specific items and legacy transactions may still reference the old rates, so always check the item's HSN classification.
What are the current GST rates in India?
The principal rates are 5% and 18%, with 40% for specified luxury and sin goods, 3% for gold, silver and jewellery, 0.25% for rough precious stones, and nil or exempt supplies.
Is there still compensation cess?
Compensation cess was discontinued from 22 September 2025 for all items except tobacco and related products.
Which rate applies to an invoice dated before 22 September 2025?
Supplies made before the change are taxed at the old rates. For advances, continuous supplies and other edge cases, the time-of-supply rules decide; check CBIC guidance or your accountant.