GST 2.0 Explained: India's New 5% and 18% GST Slabs
What changed when GST rates were rationalised from 22 September 2025 — the two main slabs, the 40% special rate, what stays the same, and what it means for invoices, accounting software and input tax credit.
By Ledgermint Editorial Team · · 2 min read
Key takeaways
- From 22 September 2025, most goods and services are taxed at one of two main GST rates: 5% or 18%.
- The earlier 12% and 28% slabs were largely removed — most items moved down to 5% or 18%.
- A special 40% rate applies to a short list of luxury and “sin” goods.
- Special rates such as 3% on gold and 0.25% on rough precious stones continue.
- Businesses had to update item and service tax rates in their accounting software and apply the change-in-rate rules to supplies that straddled the change.
India's Goods and Services Tax (GST) went through its biggest rate overhaul since its launch in 2017. The GST Council, at its 56th meeting on 3 September 2025, approved a simplified rate structure — popularly called GST 2.0 — that came into effect on 22 September 2025.
The new rate structure at a glance
| Before 22 Sep 2025 | From 22 Sep 2025 |
|---|---|
| Nil / exempt | Nil / exempt (list expanded) |
| 5% | 5% — merit rate for essentials and many everyday items |
| 12% | Largely merged into 5% or 18% |
| 18% | 18% — standard rate for most goods and services |
| 28% (+ compensation cess on some goods) | Most items moved to 18%; specified luxury and sin goods moved to a 40% special rate |
| 3% (gold, jewellery), 0.25% (rough diamonds and precious stones) | Unchanged |
What moved where — typical examples
- Down to 5% or nil: many daily-use goods such as packaged food items, personal-care products and certain medicines.
- Down from 28% to 18%: consumer durables such as air conditioners and televisions, cement, and small cars.
- Exempt: premiums on individual life and health insurance policies.
- 40%: a limited list including sugary and aerated beverages and luxury vehicles. Tobacco products such as cigarettes and pan masala continued at the earlier rate plus compensation cess for a transition period.
Rates are notified for each HSN (goods) and SAC (services) code. Always confirm the rate for your specific item in the latest CBIC rate notifications before invoicing.
What this means for accountants and businesses
1. Update tax rates in your software
Every item master in Tally Prime, Zoho Books or any other ERP carries a GST rate. When rates change, those masters must be updated, otherwise invoices are raised at the wrong rate. In Tally Prime, rates can be updated with an applicability date so earlier invoices keep the old rate.
2. Apply the change-in-rate rules to transition invoices
Where goods or services were supplied, invoiced and paid for on different sides of 22 September 2025, Section 14 of the CGST Act (change in rate of tax) decides which rate applies. This is a classic exam and interview topic — and a common source of errors in real returns.
3. Review input tax credit and inverted duty structures
If the rate on your inputs is now higher than the rate on your output supplies, you may have an inverted duty structure and accumulated credit. Check whether a refund of unutilised input tax credit is available for your situation.
4. Check pricing and MRP
Rate cuts were expected to be passed on to customers. Businesses needed to review selling prices and, for packaged goods, MRP declarations.
How the GST calculation itself works
The method is unchanged — only the rate differs. For a price that excludes GST: GST = taxable value × rate. For an intra-state supply this is split equally into CGST and SGST; for an inter-state supply it is charged as IGST. You can check numbers quickly with our GST calculator.
Frequently asked questions
What are the current GST rates in India?
Has the 12% GST slab been removed?
What is the 40% GST rate?
Learn this hands-on
- GST Computation — Intermediate, 46 hours, ₹3,500
- GST Return Filing — Intermediate, 30 hours, ₹3,500
- Tally Advanced — Intermediate, 50 hours, ₹3,500
This article is for general education and is not tax, legal or investment advice. Laws and rates change — confirm current rules with official sources or a qualified professional.