GST Rate Changes 2025 —
The GST 2.0 Reset
The GST Council's 2025 rationalisation scrapped the 12% and 28% slabs and moved to a two-rate structure — 5% and 18%, plus a 40% demerit rate on sin and luxury goods. Here is what changed, what got cheaper, and the item-wise rate table.
From 22 September 2025, GST moved to a two-slab structure. The 12% and 28% slabs were abolished and most items realigned to either 5% (merit / essentials) or 18% (standard). A new 40% demerit rate applies to sin and luxury goods (tobacco, pan masala, aerated drinks, high-end cars), and the compensation cess is merged into it. Individual life and health insurance became exempt (Nil). These changes were recommended by the 56th GST Council on 3 September 2025.
"GST 2.0" is the informal name for the 2025 rate rationalisation. It does not change how GST works (registration, returns, ITC are the same) — it simplifies the rate slabs from five bands (Nil / 5% / 12% / 18% / 28%) down to three effective bands: Nil, 5%, 18%, with a 40% demerit rate for a short list of sin and luxury items.
Old GST Slabs vs New GST 2.0 Slabs
The five-slab structure that ran from 2017 was replaced by a leaner set of rates. The table maps where the old rates went.
| Old slab (pre-22 Sep 2025) | Status now | Where it went |
|---|---|---|
| Nil | Retained | Essentials — plus more items added (e.g. individual insurance, many food staples) |
| 5% | Retained | Merit rate — many 12% items moved down to 5% |
| 12% | Removed | Split — most to 5%, some to 18% |
| 18% | Retained | Standard rate — most goods & services; several 28% items moved down to 18% |
| 28% | Removed | Most to 18%; sin / luxury to 40% |
Compensation cess (earlier on 28% sin/luxury goods) is discontinued and merged into the new 40% rate. Rates are indicative — always confirm the item's HSN/SAC and the notification.
GST 2.0 — Key Rate Changes by Item
A snapshot of headline changes. Use it as a guide and verify each item's exact rate against its HSN/SAC on the HSN code list before invoicing.
| Item / Service | Old Rate | New Rate | Direction |
|---|---|---|---|
| Individual life & health insurance | 18% | Nil | Cheaper |
| Small cars (petrol ≤1200cc / diesel ≤1500cc) | 28%+cess | 18% | Cheaper |
| Cement | 28% | 18% | Cheaper |
| TVs, ACs, dishwashers & large appliances | 28% | 18% | Cheaper |
| Many packaged foods & household items | 12% | 5% | Cheaper |
| Farm equipment & several medicines | 12% | 5% | Cheaper |
| Pan masala, tobacco & cigarettes | 28%+cess | 40% | Demerit |
| Aerated / sugary drinks | 28%+cess | 40% | Demerit |
| High-end / large cars & SUVs | 28%+cess | 40% | Demerit |
Indicative summary of the 56th GST Council recommendations; some tobacco lines transition later while cess obligations are settled. Confirm every rate against the CBIC notification for the exact HSN.
From the effective date, invoices must carry the new rate for the item's HSN/SAC. Update your accounting/billing software, price lists and POS on day one — a wrong rate on a tax invoice creates an under- or over-charge you have to reconcile later. Do not modify already-issued past invoices.
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Ask a GST Expert →What Got Cheaper Under GST 2.0
- Individual life & health insurance — premiums are now exempt (Nil), down from 18%.
- Small cars, two-wheelers and cement — moved from 28% down to 18%.
- TVs, air-conditioners and large appliances — cut from 28% to 18%.
- Many packaged foods, household goods and medicines — moved from 12% down to 5% or Nil.
- Farm inputs and equipment — several 12% items realigned to 5%.
What Moved to the 40% Rate
A short list of "sin" and luxury goods now sits at a single 40% demerit rate, which absorbs the old 28% GST plus the compensation cess that used to sit on top.
- Tobacco, cigarettes and pan masala
- Aerated and sugary drinks
- High-end cars, large SUVs and luxury vehicles
- Other notified luxury / sin items
If you hold stock bought at the old rate and sell it after the change, GST is charged at the new rate on the outward supply, while the ITC you already claimed stays valid. Reprice carefully and, where a rate fell, ensure the benefit is passed on — anti-profiteering principles can still apply.
GST Rate Changes 2025 — Frequently Asked Questions
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