GST Rates in India — Complete Guide to the Post-GST-2.0 Slab Structure

The new GST rate structure (effective 22 September 2025)

On 3 September 2025, the 56th GST Council Meeting ushered in a paradigm shift in India’s indirect tax history by approving the “GST 2.0” framework. Designed to strip away complexity, ease compliance burdens, and stimulate domestic consumption, the government radically streamlined the rate structure.

Through a series of Central Tax Rate notifications, the existing five-tier framework (0%, 5%, 12%, 18%, 28%) was officially collapsed into a four-tier slab system: 0%, 5%, 18%, and 40%. These rates became legally binding and effective on 22 September 2025.

The core philosophy of the new structure is simple:

1. 0% (NIL / exempt): essential life-sustaining goods, education, and healthcare.
2. 5% (merit rate): mass-consumption household items, daily staples, and low-cost transport.
3. 18% (standard rate): the de facto rate covering almost all services, capital goods, consumer electronics, and standard automobiles.
4. 40% (luxury / sin rate): demerit items, ultra-luxury vehicles, and premium lifestyle products (absorbing most of the former Compensation Cess base).

Note: The tax rates mentioned represent the total IGST for inter-state supplies. For intra-state supplies, the rate is split equally between CGST and SGST (e.g., an 18% item attracts 9% CGST and 9% SGST).

Why the reform happened — context

The original 2017 GST rollout brought thousands of items into a unified tax net but struggled with extreme categorisation complexity. Businesses frequently faced classification disputes, particularly bordering the 12% vs. 18% lines and the 18% vs. 28% lines.

The GST 2.0 reform was driven by three primary objectives:

• Stimulating the middle class: the sweeping rate cuts — where roughly 175 consumer categories became cheaper overnight — were engineered to reduce household inflation and spur rural and semi-urban consumption. Moving everyday toiletries and packaged foods from 12% and 18% down to 5% creates a direct reduction in the monthly grocery bill.
• Rationalising classification: by eliminating the “messy middle” (the 12% slab) and capping standard goods at 18% (abolishing the 28% slab for normal consumer durables), the GST Council drastically reduced the surface area for litigation.
• Addressing the Compensation Cess: the GST Compensation Cess was originally intended to run for five years to reimburse states for revenue loss. Having been extended to clear pandemic-era borrowing, the GST Council determined it was time to phase it out. Instead of a complex “28% + variable cess” formula for luxury items, the government merged the cess directly into a flat 40% GST slab for most affected items.

For the broader GST framework — registration, returns, ITC — see the GST overview pillar.

Slab 1: 0% / NIL-rated + exempt supplies

Items in the 0% category do not attract any GST liability. From an accounting and compliance perspective, three categories must be distinguished — they affect Input Tax Credit (ITC) eligibility:

• NIL-rated: goods and services that are taxable under the GST Act, but the current tariff rate is set to 0% (e.g., fresh vegetables). You cannot claim ITC on inputs used to supply these items.
• Exempt: goods and services specifically excluded from GST by Government notification under Section 11 of the CGST Act. You cannot claim ITC.
• Non-GST (out of scope): items not covered by the GST Act at all (e.g., alcohol for human consumption, crude petroleum).

What is included in the 0% slab?

• Food + produce: fresh fruits and vegetables, unpacked food grains, fresh meat, fish, eggs, unbranded natural honey, chapati, paratha, UHT milk, paneer.
• Healthcare (newly NIL-rated): individual life insurance premiums, individual health insurance policies, and life-saving drugs (previously taxed at 12% or 18%).
• Education: services provided by educational institutions; basic stationery (notebooks, erasers, pencils, sharpeners, maps, charts, globes).
• Agriculture: seeds, basic agricultural implements operated by animal or human power.

Slab 2: 5% — essential and merit items

The 5% slab represents “mass consumption” or merit goods. A monumental shift in the September 2025 reform was the absorption of 99% of the old 12% slab into this 5% tier, providing relief to the FMCG sector and middle-class households.

What is included in the 5% slab?

• Daily essentials + toiletries: hair oil, shampoo, toothpaste, toilet soap, shaving cream, toothbrushes, and combs (previously 18%).
• Packaged + branded foods: pre-packaged namkeens, bhujia, mixtures, butter, ghee, cheese, dairy spreads, fruit juices, frozen meat, dry fruits, branded cereals (previously 12%).
• Household items: kitchen utensils, feeding bottles, clinical diapers, baby napkins, umbrellas, bamboo furniture, sewing machines.
• Apparel + footwear: standard mass-market footwear and textiles (previously bifurcated by price limits).
• Transportation + travel: economy class air tickets, AC and non-AC railway tickets, hotel rooms priced up to ₹7,500 per night, app-based cab aggregators.
• Automotive + agriculture: electric vehicles (EVs) and EV chargers (unchanged), tractors, drip irrigation systems, bio-pesticides, tractor tyres.
• Medical equipment: thermometers, diagnostic kits, glucometers, medical-grade oxygen, corrective spectacles.
• Services: salons, barber shops, gyms, fitness centres, yoga services (dropped from 18%).

Slab 3: 18% — the standard rate

The 18% slab is the backbone of GST 2.0. If a manufactured good or commercial service does not fall into a specific exemption or luxury category, it defaults to 18%. About 90% of goods previously in the 28% bracket (appliances, small cars) have been downgraded to 18%.

What is included in the 18% slab?

• Consumer durables (white goods): air conditioners, washing machines, refrigerators, televisions (all sizes), dishwashers, digital cameras (all previously 28%).
• Automobiles (standard + small): petrol/hybrid cars under 1200cc, diesel/hybrid cars under 1500cc (length < 4000mm), three-wheelers, motorcycles ≤ 350cc. Motor vehicles for transport of goods also covered here.
• Construction + capital goods: cement, paints, varnishes, elevators, escalators, heavy industrial plant machinery.
• IT + telecom: smartphones, computers, monitors, projectors, software licensing, internet/telecommunication services.
• Standard services: financial and banking services (loan processing fees, credit card charges), IT services, professional consulting, most B2B contracts.

Note for businesses: since 18% is the dominant rate for B2B supplies, proper invoicing is vital to ensure your buyers can claim seamless Input Tax Credit. See the GST Return Filing service.

Slab 4: 40% — sin and luxury

The most prominent architectural change of GST 2.0 is the introduction of the flat 40% slab. Previously, luxury and demerit goods were taxed at 28%, plus an unpredictable, variable Compensation Cess that could range anywhere from 1% to 22% depending on the specific product variant.

By terminating the general Compensation Cess levy and rolling it into a clean 40% slab, the Government has simplified invoicing for high-end manufacturers and importers.

What is included in the 40% slab?

• Aerated + sugary drinks: caffeinated beverages, energy drinks, aerated waters.
• Luxury + large vehicles: SUVs, luxury passenger vehicles, large cars (exceeding 1200cc petrol / 1500cc diesel, or longer than 4000mm in length), motorcycles exceeding 350cc.
• High-end transport: yachts, private aircraft, helicopters used for personal or leisure use.
• Gambling + betting: casino admissions, online real-money gaming, race clubs, premium event tickets.

The tobacco exception: While the base Compensation Cess was absorbed into the 40% rate for most items, tobacco products and pan masala remain an exception. Until the Centre fully clears its pending compensation loans to the states, specific tobacco products continue to attract the highest GST base rate plus a variable compensation cess. Verify against the latest CBIC circulars if you operate in this niche.

Special rates: 0.25% / 1.5% / 3%

To prevent capital lockup and smuggling in the unorganised gems and jewellery sector, the Government maintains three “niche” rates outside the primary four slabs. The GST 2.0 reform did not alter these historical rates:

• 0.25%: rough industrial diamonds and specific uncut precious stones.
• 1.5%: cut and polished diamonds.
• 3%: gold, silver, platinum, imitation jewellery, articles made of precious metals.

(Note: making charges applied by a jeweller are treated as a service and are generally taxed separately.)

How to find the rate for what you sell — HSN / SAC code lookup

Product names and brand descriptions mean nothing in GST law; the tax rate is exclusively determined by the Harmonized System of Nomenclature (HSN) for goods, or the Service Accounting Code (SAC) for services.

1. Identify the code: use the CBIC’s official HSN lookup. Drill down to the 4-digit, 6-digit, or 8-digit level based on your turnover. (Turnover > ₹5 crore requires 6-digit HSN reporting.)
2. Cross-reference the tariff: match the HSN code against the latest post-September-2025 rate schedules.
3. Check for conditional rates: some items have rates contingent on price or packaging. For example, unbranded, loose staple food is 0%, but the exact same food “pre-packaged and labelled” falls under 5%.

Applying the wrong HSN code can lead to short-payment of tax, exposing your business to penalties under Section 122 of the CGST Act, plus 18% penal interest.

Composition scheme rates (Section 10)

For millions of micro and small enterprises, determining the HSN code for thousands of retail items and tracking corresponding Input Tax Credits is an administrative nightmare. Section 10 of the CGST Act offers the Composition Scheme.

Instead of taxing individual items based on the 4-slab system, eligible businesses pay a flat, nominal percentage directly on their aggregate turnover. However, a composition dealer cannot collect GST from their customers (no tax invoices) and cannot claim Input Tax Credit (ITC) on their purchases.

FY 2025-26 thresholds + rates: To opt in, aggregate annual pan-India turnover in the preceding FY must not exceed ₹1.5 crore (reduced to ₹75 lakhs for certain special-category North-Eastern states).

Business category	Composition GST rate	Tax split
Manufacturers + traders (goods)	1% of turnover	0.5% CGST + 0.5% SGST
Restaurants (not serving alcohol)	5% of turnover	2.5% CGST + 2.5% SGST
Service providers (Section 10(2A))	6% of turnover	3.0% CGST + 3.0% SGST

(Note: the threshold limit for service providers operating under Section 10(2A) is capped at ₹50 lakhs.)

If your business scales beyond these limits, you must transition to regular GST registration. See GST Registration service for transition protocols.

What changed from the 5-slab era — before / after table

To understand the scale of the September 2025 GST 2.0 reform, here is a snapshot of how major commodity groups migrated.

Item category	Old regime rate (pre-Sep 2025)	GST 2.0 rate (post-Sep 2025)
Individual health + life insurance	18%	NIL (0%)
Life-saving medicines	12%	NIL (0%)
Basic stationery (notebooks, maps)	12%	NIL (0%)
Everyday toiletries (soap, shampoo)	18%	5%
Branded / packaged foods + dairy	12%	5%
Air conditioners, TVs, dishwashers	28%	18%
Small cars + motorcycles (≤350cc)	28% (+ cess)	18%
Cement + auto parts	28%	18%
SUVs + large cars	28% (+ cess up to 22%)	40% (cess merged)
Aerated beverages	28% (+ 12% cess)	40% (cess merged)

Inverted duty structure + refund mechanism

An “inverted duty structure” occurs when the GST rate paid on raw materials (inputs) is legally higher than the GST rate charged on the finished product (outward supply).

The challenge: Consider a manufacturer of everyday toiletries. Following GST 2.0, the output tax on soap and shampoo dropped to 5%. However, the raw chemical ingredients used to manufacture the soap remain at the standard industrial rate of 18%. Because the manufacturer pays more in 18% input taxes than they collect in 5% output taxes, Input Tax Credit (ITC) accumulates in the electronic credit ledger, locking up working capital.

The solution: Under Section 54(3) of the CGST Act, a registered taxpayer is permitted to claim a cash refund of this unutilised ITC.

Following GST 2.0, the GSTN portal has progressively rolled out enhanced analytics to facilitate the automated processing of provisional refunds for taxpayers facing inverted duty structures. Verify the current refund timelines, provisional percentage, and supporting documentation against the latest GSTN advisory.

For a full Section 16 + 17(5) walkthrough on claiming and reconciling ITC in the first place, see GST ITC rules.