GST & tax
GST 2.0: the new GST rates explained
GST 2.0 is the biggest change to India's GST rate structure since it launched in 2017. From 22 September 2025, the old five-slab system (0%, 5%, 12%, 18% and 28%) was replaced with a simpler structure: 0%, 5%, 18% and a new 40% special rate for luxury and sin goods.
This guide covers exactly what changed, what moved where, the one notable exception, and how to redo a calculation that used to rely on the old 12% or 28% slabs.
What actually changed
The 56th GST Council meeting on 3 September 2025 approved a rate rationalisation that collapsed the old four-rate structure into two headline rates. Notifications 09/2025 to 17/2025-Central Tax (Rate), dated 17 September 2025, made it effective from 22 September 2025.
| Old slab | What happened to it | New slab |
|---|---|---|
| 0% | Unchanged, and expanded to more items | 0% |
| 5% | Unchanged | 5% |
| 12% | Almost entirely merged upward | 5% (most items) |
| 18% | Unchanged, now the dominant rate | 18% |
| 28% | Mostly merged downward, some to a new top rate | 18% (most) or 40% (luxury/sin) |
Roughly 99% of items that were taxed at 12% moved down to 5%, and roughly 90% of items that were taxed at 28% moved down to 18%. The net effect is that 18% is now the standard rate for most general goods and services, and 5% covers most everyday essentials.
The new 40% special rate
A new 40% slab was created specifically for luxury and sin goods: the kind of items that used to sit at 28% plus a compensation cess. It applies to things like aerated and carbonated drinks, luxury cars, motorcycles above 350cc, and casino or gambling admissions. For most of these items, 40% works out close to what the old 28% rate plus cess actually collected: it folds two numbers into one flat rate.
The exception: tobacco and pan masala
Tobacco products and pan masala did not move to 40% along with the rest of the old 28% category. They remain at the earlier 28% rate plus the applicable compensation cess, because the cess on these items is still funding compensation the Centre owes states from the original GST rollout. That transition will be notified separately once those obligations are settled. Until then, don't apply 40% to tobacco or pan masala.
Examples of what moved where
| Item | Old rate | New rate |
|---|---|---|
| Packaged snacks, dairy, personal care | 12% | 5% |
| Medical devices, tractors, drip irrigation | 12% | 5% |
| Individual health and life insurance premiums | 18% | 0% |
| Air conditioners, TVs, small cars | 28% | 18% |
| Aerated drinks, luxury cars, motorcycles >350cc | 28% + cess | 40% |
| Tobacco, pan masala | 28% + cess | 28% + cess (unchanged for now) |
Recalculating an old 12% or 28% figure
If you have a worked example, quotation or invoice template that used the old 12% or 28% rate, don't just relabel the number: the tax amount and total genuinely change.
Old: ₹50,000 taxable value at 12% → GST ₹6,000 → Total ₹56,000
New: ₹50,000 taxable value at 5% → GST ₹2,500 → Total ₹52,500
Run any figure through the GST calculator at the new rate rather than adjusting the old total by hand: the calculator already defaults to the current 0%, 5%, 18% and 40% slabs.
What did not change
The mechanics of GST itself are unchanged: HSN and SAC codes still decide the rate, CGST and SGST still split an intra-state sale in half, IGST still applies to inter-state supplies, and the formulas for adding or removing tax are identical. See how to calculate GST and CGST vs SGST vs IGST for the full formulas. Only the rate numbers themselves changed.