GST 2.0 Explained: 5%, 18% and 40% Slabs in Simple Words

Short answer

After the 56th GST Council meeting, India moved to a simpler rate structure that took effect on 22 September 2025 for most goods and services (pan masala and tobacco products followed a different timeline). The 12% and 28% slabs were removed. Most 12% items moved to 5%, most 28% items moved to 18%, and a special 40% rate applies to a small set of demerit/luxury goods. Nil/exempt items still exist. People call this "GST 2.0".

I'm writing this for shop owners and accounts staff who just want to know what changed and what to update, without the jargon.

For the rate of any specific item, always check the official CBIC rate notification or ask your CA. This post explains the structure, not item-by-item rates.

Before vs after

	Before 22 Sep 2025	From 22 Sep 2025
Main slabs	5%, 12%, 18%, 28%	5%, 18%
Special rate	Compensation cess on top of 28% for some goods	40% for specified demerit/luxury goods
Exempt / nil	Yes	Yes
Special low rates (e.g. gold, rough diamonds)	Yes	Continue as notified

Sources differ on exactly how many items fall in the 40% bracket, which is another reason to check the notification for your product.

What it means in plain words

For customers

Many everyday goods that were at 12% now carry 5%, and many consumer goods earlier at 28% now carry 18%. Whether the final price fell depends on whether the seller passed it on.

For small businesses

Your billing software, item masters and price lists must use the new rate for supplies made on or after the effective date. Three things matter:

1. Time of supply decides the rate, not only the invoice date. For supplies around the change-over, check when goods were supplied/services provided and when payment was received.
2. Input tax credit (ITC) on purchases made before the change follows the normal rules. Ask your CA if you have large old stock.
3. Inverted duty structure: if your inputs are now taxed higher than your output, ITC can pile up. Refund rules for inverted duty exist; get advice before assuming eligibility.

For accounts staff

• Update the GST rate on every stock item / service in Tally, Busy, Zoho Books or whatever software you use.
• Check HSN-wise rates against the notification, not a WhatsApp forward.
• Print one test invoice for each rate before going live.
• In returns, ensure invoices before and after the date carry the correct rate.

Step-by-step: updating rates in your software

1. List your items with HSN codes in Excel.
2. Match each HSN to the new rate using the CBIC notification (or your CA's confirmed list).
3. Update item masters with the new rate effective from the change date. Tally Prime lets you keep rate history with an "applicable from" date, so old invoices stay correct.
4. Test: create one dummy sale per rate and check CGST/SGST/IGST.
5. Inform customers if MRP or price lists change.

If you use Tally, the full entry walkthrough is here: Tally Prime GST entry in Hindi.

Common myths

"Everything is now either 5% or 18%." No. Nil/exempt, special rates for certain goods, and 40% for specified goods still apply.

"Invoice date alone decides the rate." Not always. Time of supply rules decide it.

"The 40% rate is for all luxury goods." It applies only to goods notified for it. Check the list.

"Compensation cess simply vanished for everything on the same day." Tobacco-related goods followed a separate timeline. Treat each category per notification.

Quick checklist (print this)

• [ ] Item master rates updated with effective date
• [ ] HSN codes verified
• [ ] Old stock ITC position reviewed with CA
• [ ] Price lists / MRP stickers updated where needed
• [ ] Test invoices checked for each rate
• [ ] Staff told which items changed

FAQ

From when did the new GST rates apply?

From 22 September 2025 for most goods and services, as decided at the 56th GST Council meeting. Some tobacco-related goods followed a different timeline.

Is 12% GST completely gone?

The 12% slab as a general rate was removed; most of those items moved to 5%. Check your specific item in the notification.

Where can I see official GST rates?

On the CBIC GST portal (cbic-gst.gov.in) rate notifications. Avoid relying on social media lists.

Do I need a CA for GST?

For registration and simple monthly returns many small businesses manage themselves, but rate classification and refunds are worth a professional's check.

Will GST rates change again?

The GST Council can revise rates at any meeting. Re-check before filing season. We update this page when official changes are announced.

Related reading: GSTR-1 vs GSTR-3B (coming soon) and Tally Prime free course.

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