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GST 2.0: India’s 5%, 18% and 40% Rates and What Businesses Should Check

Since 22 September 2025, India’s GST has run on two main rates: a merit rate of 5% and a standard rate of 18%, plus a special 40% rate for a narrow list of luxury and sin goods. The 12% and 28% slabs were removed for most items. If your products moved between slabs, your invoices, accounting masters and input tax credit position all need checking.

What changed

  • Decision: the 56th GST Council meeting on 3 September 2025 approved the rate rationalisation, often called GST 2.0.
  • Effective date: 22 September 2025 for most goods and services. Some tobacco products followed a separate timeline.
  • New structure: 5% (merit), 18% (standard) and 40% (special rate for select luxury and demerit goods), with 0% continuing for exempt and nil-rated items.
  • Insurance: individual life and health insurance premiums became exempt from GST.

Who is most affected

  • Businesses whose products moved from 12% to 5%, such as many everyday consumer goods.
  • Businesses whose products moved from 28% to 18%, such as cement, many appliances and small cars.
  • Businesses with inputs taxed at a higher rate than their outputs, who may now have accumulated input tax credit.

Compliance checklist

  • Rate masters. Check every HSN and SAC code in Tally, Zoho Books or your ERP carries the correct new rate.
  • Transition invoices. For supplies around 22 September 2025, the rate depends on the time of supply, not just the invoice date. Review any transactions that straddled the change.
  • Input tax credit. Where input rates are now higher than output rates, assess whether a refund of accumulated credit is available.
  • Pricing and contracts. Check that price lists and long-term contracts reflect the new rates.
  • Returns. Reconcile GSTR-1 and GSTR-3B with your books and GSTR-2B for the periods after the change.

Source: GST Council, 56th meeting recommendations; CBIC rate notifications dated 17 September 2025.

Last reviewed: October 2026. This article is general information, not advice for your specific situation. Rules change; check the official source or speak to us before acting.

Need help with this? Email consult@panaceawfs.com for a free consultation, or see our GST compliance service.