GST 2.0 Explained: the new 5%, 18% & 40% slabs
On 22 September 2025, India rolled out its biggest tax change since 2017. The old four-rate system (5%, 12%, 18%, 28%) became a cleaner three-slab structure — 5%, 18% and 40% — plus a 0% band for essentials. Here's what actually changed, in plain English, and what it means for your prices and invoices.
What is GST 2.0?
GST 2.0 is the popular name for the rate rationalisation approved at the 56th GST Council meeting on 3 September 2025 and notified by the CBIC shortly after. For years, businesses struggled with the "messy middle" — was a product 12% or 18%? Was a service 18% or 28%? Those grey areas caused classification disputes and uneven pricing.
The fix was to collapse the structure. The 12% and 28% slabs were removed entirely. Most items at 12% dropped to 5%, most items at 28% dropped to 18%, and a small group of luxury and "sin" goods moved up to a new 40% rate. The result is fewer slabs, fewer disputes, and cheaper essentials for households.
Old slabs vs new slabs
Here is how the structure shifted under GST 2.0:
Special rates of 0.25% (rough diamonds) and 3% (gold, silver and other precious metals) continue unchanged.
What each GST slab covers now
- 0% — many everyday essentials: most fresh and unbranded foods, UHT milk, paneer, Indian breads, several life-saving medicines, educational items, and — a major relief — individual health & life insurance premiums (which were 18% before).
- 5% — the merit rate: packaged and branded foods, namkeen and snacks, pasta and noodles, sauces, most medicines, everyday personal care like soap, shampoo and toothpaste, medical devices, baby diapers, tractors and farm machinery.
- 18% — the standard rate for most goods and services: electronics, ACs, refrigerators, washing machines, TVs, laptops, mobile phones, cement, small cars (petrol ≤1200cc / diesel ≤1500cc, under 4 m), motorcycles up to 350cc, and most professional, IT and financial services.
- 40% — luxury and "sin" goods only: aerated and energy drinks, luxury cars and large SUVs, motorcycles above 350cc, tobacco and cigarettes, and casino/gambling.
- 0.25% & 3% — special rates that continue for rough diamonds (0.25%) and gold, silver and precious metals (3%).
What got cheaper — and what costs more
Cheaper: a huge share of daily-use goods. Around 99% of items that were taxed at 12% dropped to 5%, and roughly 90% of the old 28% items dropped to 18%. White goods (fridges, ACs, washing machines, TVs), small cars, cement, packaged food and personal care all became lighter on the wallet — and individual health and life insurance became tax-free.
Costlier or unchanged at the top: the new 40% slab keeps luxury and harmful products heavily taxed — premium cars, big bikes, aerated drinks, and tobacco. Note that some tobacco products keep their earlier rate-plus-cess arrangement until the compensation cess obligations are fully cleared.
What GST 2.0 means for your invoices & pricing
If you sell goods or services, three things deserve a quick check:
- Confirm your new rate. Find your product's HSN/SAC code and check whether it moved slabs. A wrong rate on an invoice is the easiest GST mistake to make right now.
- Re-do your pricing. If your input or output rate changed, your margins and final selling price change too. Recalculate before you reprint price lists.
- Update your invoice template. Make sure the rate, and the CGST/SGST or IGST split, reflect the new slabs.
You can do all three for free, right in your browser, with our tools: the GST Calculator for the add/remove and CGST-SGST-IGST split, the Profit Margin Calculator to re-set your selling price, and the Invoice Generator to produce a clean GST invoice. Already have a tax-inclusive price? The Reverse GST Calculator pulls out the base and the GST inside it.