Key Takeaways
- GST 2.0, live since September 22, 2025, simplified the tax slabs to mainly 5% and 18%.
- The old 12% and 28% slabs have been removed for most items.
- A 40% rate applies to a short list of sin goods and luxury vehicles.
- Gold and a few niche items continue at special rates such as 3%.
- Daily essentials, agricultural equipment, and healthcare services have mostly dropped to 5% or zero.
For years, Indian shop owners and founders struggled to remember which rate applied to which product. Was that biscuit 5% or 12%? Was that TV 18% or 28%? GST 2.0 ended most of the guesswork.
The 56th GST Council, in September 2025, collapsed the four-rate system into a cleaner two-slab structure. The changes took effect from September 22, 2025, and have now run for two quarters. If your business is still using old rates on invoices, this guide walks through what the current structure looks like and where the common products landed.
Looking for expert help with GST 2.0 rate mapping and invoicing support for Indian small businesses? The team at Tax Garden helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
The Old Structure vs the New
Until September 2025, GST had four main slabs: 5%, 12%, 18%, and 28%. A handful of items sat at 0%, and special items such as gold were at 3%. The 12% slab was the most confusing, holding a mixed bag of goods that did not obviously belong there, and the 28% slab often felt punitive for items people considered everyday essentials.
GST 2.0 reduced this to:
| Slab | Purpose |
|---|---|
| 0% | Exempt items (unbranded food grains, fresh milk, books, certain healthcare) |
| 5% | Daily essentials, agricultural goods, healthcare equipment, packaged foods |
| 18% | The default slab for most goods and services (electronics, white goods, services, restaurants) |
| 40% | Sin goods (pan masala, aerated drinks, cigarettes) and luxury vehicles |
| 3% | Gold, silver, and precious metals (special rate retained) |
The 12% and 28% slabs are gone for almost every mainstream product.
Where Common Products Landed
Dropped from 12% or 18% to 5%
Several everyday items became cheaper overnight:
- Butter, ghee, paneer, cheese
- Packaged biscuits, namkeen, and most snacks
- Most agricultural equipment (harvesters, threshers, sprayers)
- Bicycles and bicycle parts
- Footwear priced up to a threshold
- Stationery items including pens and exercise books
Dropped from 28% to 18%
The 28% slab was the most politically charged. Most items on it moved to 18%, including:
- Small cars and two-wheelers
- Televisions, refrigerators, air conditioners, washing machines
- Cement (a long-standing construction industry demand)
- Auto parts and accessories
New 40% Slab: Small but Steep
A new 40% slab was created for a narrow set of items the Council wanted to tax more heavily:
- Pan masala, gutka, and chewing tobacco
- Cigarettes and smoking products
- Aerated drinks and caffeinated beverages
- Luxury cars and high-end motorcycles above a defined engine-capacity threshold
If you are not in these categories, you will never see 40% on your invoice.
Services: Mostly 18%, Some 5%, Some 0%
Services largely continue at 18% as the default. Exceptions that moved or were clarified:
- Healthcare services are now at 5% or fully exempt, depending on the specific service
- Education services (recognised institutions) remain exempt
- Restaurants continue at 5% (non-AC, outside-specified-premises) or 18% (AC / within hotel premises)
- Residential renting for commercial use retained at 18%
Gold and Precious Metals: The 3% Rate Stays
Gold jewellery, gold bars, silver, and platinum continue to be taxed at 3%. In IGST terms this is 3%; within a state, it is 1.5% CGST plus 1.5% SGST. The Council retained this special rate rather than collapsing it into the main slabs, largely because of the scale of the jewellery trade and the potential inflation impact on a single-slab move.
What This Means for Invoicing
If you sell across categories, your invoicing system needs to be updated in three places:
- Item master. Each product's HSN code and tax rate must match the new structure. If you migrated from a 12% or 28% rate, confirm the new slab per the CBIC notification for your specific HSN.
- Accounting software settings. Tally, Zoho Books, Busy, and ClearTax all pushed updates for GST 2.0. Ensure you ran the update and reviewed rate changes on your SKUs.
- Templates and point-of-sale systems. Any hard-coded rate in a receipt template, a Razorpay checkout, or a quick-commerce seller dashboard must be refreshed.
Retail and FMCG owners should also audit price tags. Consumer laws require the benefit of a rate reduction to be passed on, and the National Anti-Profiteering Authority (now under CCI) can investigate failure to do so.
How This Changes Your Monthly Return Filing
The mechanics of GSTR-1 and GSTR-3B have not changed. You continue to report outward supplies rate-wise, and GSTR-2B populates based on vendor invoices. What changes is the accuracy of the rate you pick. A wrong rate on a tax invoice will show up as a mismatch in IMS (Invoice Management System) for your customer, and your customer can reject the invoice.
For a typical SME, the pragmatic checklist each month is:
- Reconcile GSTR-2B vs purchase register for rate differences
- Reconcile GSTR-1 vs sales register for rate corrections
- Respond to IMS actions (accept, reject, pending) within the filing cycle
- File GSTR-3B using the validated numbers
If any invoice was issued at an old rate after September 22, 2025, correct it through a revised invoice or credit note before the annual reconciliation window closes.
Worked Example: A Small Kirana Store
Consider a neighbourhood kirana store that stocks basics, branded snacks, personal care products, and cold drinks.
- Rice, atta, unbranded pulses: 0% (exempt)
- Packaged biscuits, chocolates, namkeen: 5% (earlier 12% or 18%)
- Soaps, shampoos, toothpaste: 18% (unchanged for most)
- Aerated cold drinks (Coke, Pepsi, Thums Up): 40% (earlier 28% plus cess; now 40% GST)
- Bottled water, juices: 5% or 12% depending on type; most moved to 5% under GST 2.0
The store's average invoice rate fell for most categories, except aerated drinks, where the price went up.
Common Mistakes in the Transition
Two years of audit experience across Tax Garden clients suggest four recurring mistakes:
- Invoices issued at old rates. Accounting software not updated in time, leading to mismatches in buyer's GSTR-2B.
- Double counting cess. The compensation cess on sin goods (tobacco, aerated drinks) is separate from the 40% slab in some cases. Check the exact notification for your HSN.
- Overlooking rate changes on services. Service businesses assumed nothing changed, but several healthcare, education, and hotel sub-categories shifted.
- Ignoring anti-profiteering scrutiny. Rate reductions are expected to be passed on to the consumer. Businesses that kept prices unchanged after a rate drop can face notices.
Frequently Asked Questions
When did GST 2.0 go live?
The new rate structure took effect on September 22, 2025, following the 56th GST Council meeting held earlier that month.
Has the 12% slab been fully removed?
For almost all mainstream items, yes. A few specific goods retained 12% under transitional notifications, but the slab is effectively merged into 5% and 18%.
What about the 28% slab?
Removed for consumer goods. The 28% slab was replaced by 18% for most electronics, appliances, and small vehicles. The 40% slab caught a narrow list of sin goods and luxury vehicles that were moved up rather than down.
Do I need to issue revised invoices for sales after September 22, 2025 at old rates?
Yes. Any tax invoice with an incorrect rate after the change date should be corrected via a revised invoice or credit note. This prevents GSTR-2B mismatches for your buyer and potential rejection under IMS.
Are there state-specific variations?
No. GST rates are uniform across India. State-level variation exists only for the CGST + SGST split (each 50% of the GST rate), not the total rate applied.
What to Do if You Are Still Catching Up
If your business is still invoicing at pre-September 2025 rates, here is the practical sequence:
- Pull a list of products and services you sell and confirm each HSN against the current rate notification.
- Update your accounting software's tax master.
- Audit invoices issued since September 22, 2025 and reconcile against the correct rate.
- Issue credit notes or revised invoices where the rate was wrong.
- Refile GSTR-1 amendments if the value or rate was incorrectly reported.
For most small businesses, this is a one-day exercise. For businesses with a large SKU catalogue (retail, e-commerce, FMCG), it takes longer and is worth handing to a compliance team.
The Bigger Shift
GST 2.0 is not just a rate adjustment. It is a signal that the tax system is moving towards fewer, simpler decisions at the point of sale. Paired with IMS, e-invoicing thresholds dropping, and Aadhaar authentication for refunds, the rate change is part of a broader push towards a compliance model where the system does the validation and the business does the reporting.
For founders and SME owners, the takeaway is practical: make sure your systems reflect the current rates, your invoicing is accurate, and your monthly reconciliation catches any drift. The penalty for operating at wrong rates is now structural, not just financial.
If your rate mapping, HSN codes, or monthly filings need a review, Tax Garden's GST team can audit your current setup and fix anything that drifted during the transition.
Explore our plans or see how it works.
This guide references the 56th GST Council decisions of September 2025, the CBIC rate notifications effective September 22, 2025, and rate mapping verified against CBIC circulars, cleartax.in/s/gst-rates, bajajfinserv.in/gst-rates-in-india, and vakilsearch.com GST rate guides. HSN-specific rates and exceptions should be confirmed against the current CBIC notification for the exact product before issuing invoices or amending returns.
