New GST Rates 2025 (GST 2.0) Explained With Examples

By MavexTech · Updated 16 October 2026 · 9 min read

From 22 September 2025, GST in India moved to a simpler structure often called GST 2.0: most goods and services now fall into two main slabs, 5% and 18%, with a special 40% rate for a short list of luxury and sin goods. The old 12% and 28% slabs were largely folded into these, so many everyday items, appliances and small cars became cheaper.

What changed under GST 2.0

The GST Council, at its 56th meeting on 3 September 2025, approved a rate rationalisation that the government calls the next generation of GST, widely described as GST 2.0. The new rates took effect on 22 September 2025. The headline change is that the old four-slab structure (5%, 12%, 18% and 28%) was cut to two main slabs plus one special slab:

• 5% (merit rate) for essentials and items of mass consumption, including most food items, personal care products and medicines.
• 18% (standard rate) for most other goods and services, including many appliances and small cars that were earlier at 28%.
• 40% (special or demerit rate) for a short list of luxury and sin goods, such as pan masala, aerated sugary drinks, larger cars and motorcycles above 350 cc.
• Nil (exempt) for a wider list than before, including individual life and health insurance premiums and some everyday foods.

A few special rates sit outside these slabs and were not part of the main change, for example 3% on gold, silver and jewellery and 0.25% on rough diamonds. The compensation cess, which used to sit on top of 28% for cars, aerated drinks and similar goods, was removed for most goods; it continues for tobacco products for now, until the government notifies otherwise.

For a buyer, this means many bills got smaller. For a business, it means every product and service needs its rate checked against the new notifications, and billing software must use the correct rate for invoices dated on or after 22 September 2025. The official rate notifications are published on the CBIC GST portal.

Old vs new GST rates for common items

The table below lists common items and their headline rates before and after 22 September 2025. GST rates are applied by HSN code, and a single product family can have several entries, so treat this as a quick guide and confirm the exact entry for your product before you invoice.

Rates as notified for GST 2.0; individual HSN entries, conditions and later amendments can differ. Check the latest notification on cbic-gst.gov.in before relying on a rate.

Two rules deserve a closer look:

• Clothes and footwear: items priced up to ₹2,500 per piece attract 5%. Above ₹2,500 per piece the rate is 18%. Earlier the dividing line was ₹1,000, and the higher rate was 12%.
• “No ITC” services: budget hotel rooms and gym or salon services moved to 5%, but the business providing them cannot claim input tax credit on its own purchases. The customer pays less tax, while the provider’s costs may rise slightly.

How to calculate GST (exclusive and inclusive)

GST is a percentage of the taxable value, which is the price before tax. There are two common situations: you know the price before tax and want the final amount, or you know the final price (such as an MRP) and want to know how much tax is inside it.

Adding GST to a price (exclusive)

Example: a service billed at ₹1,000 before tax, at 18%. GST = 1,000 × 18 / 100 = ₹180. Final price = ₹1,180.

Removing GST from a price (inclusive)

Example: a price of ₹1,180 that includes 18% GST. Taxable value = 1,180 / 1.18 = ₹1,000, and GST inside it = ₹180. A common mistake is to take 18% of ₹1,180 (which gives ₹212.40); that overstates the tax because it charges tax on the tax.

CGST, SGST and IGST

The rate is the same, but who collects it depends on where the sale happens:

• Within the same state (intra-state): the rate is split equally into CGST and SGST (or UTGST). The ₹180 above becomes ₹90 CGST + ₹90 SGST.
• Between states (inter-state): the full rate is charged as IGST, so the invoice shows ₹180 IGST.

How much cheaper did things really get?

A drop from 28% to 18% sounds like a 10% price cut, but it is not. The tax is charged on the pre-tax value, so the right way to compare is to divide the new multiplier by the old one:

So a 28% to 18% cut makes the final price about 7.81% lower, not 10%, and an 18% to 5% cut makes it about 11.02% lower, not 13%. This assumes the seller passes on the full benefit and does not change the base price.

Worked examples

Each example below keeps the pre-tax value the same and changes only the GST rate. All figures were computed with the formula above.

For the small car, the old price ignores the compensation cess that applied on top of 28%. Because that cess is also gone for small cars, the real saving was a little higher than the ₹60,000 shown. Larger cars moved from 28% plus a higher cess to a flat 40% with no cess, so some of them also became cheaper overall even though the headline rate went up.

Example: one invoice with three GST rates

Shops often sell items at different rates on the same bill. Each line is taxed at its own rate, and the totals are added at the end. Here is an intra-state invoice (same state, so CGST + SGST) for a shop selling toothpaste, a TV and notebooks after 22 September 2025:

Total taxable value is ₹29,700, total GST is ₹5,085 (₹2,542.50 CGST + ₹2,542.50 SGST), and the invoice total is ₹34,785. If the same goods were shipped to a buyer in another state, the tax would be the same ₹5,085, shown as IGST.

A valid tax invoice should also show the supplier’s and (for B2B sales) the buyer’s GSTIN, invoice number and date, HSN or SAC code for each line, place of supply, and the rate and amount of each tax. Leaving out the HSN code or applying an old rate are the most common errors after a rate change.

What GST 2.0 means for businesses

If you run a shop, a service business or an online store, the rate change is mostly an admin task, but mistakes can be costly. Work through this checklist:

1. Re-map every product to the new rate. Pull your item master from your billing or accounting software and check each HSN code against the new notifications. Do not assume a product moved just because its category did.
2. Check the date logic. Section 14 of the CGST Act decides which rate applies when goods are supplied, invoiced and paid for on different sides of a rate change. If all three fall on or after 22 September 2025, the new rate applies.
3. Pass on the benefit. Customers will compare prices. Where the rate fell, reduce the tax-inclusive price; for packed goods, follow the Legal Metrology rules on revised MRP labels.
4. Review input tax credit. Services moved to 5% “without ITC” can no longer claim credit on their own purchases. Some manufacturers may now pay a higher rate on inputs than on outputs (an inverted duty structure) and should check the refund rules.
5. Update templates. Invoices, quotations, e-commerce listings and price lists should all show the new rate.

If you are a salaried person, the most visible change is on insurance: individual life and health insurance premiums are now exempt, so a ₹20,000 health policy that used to cost ₹23,600 with 18% GST now costs ₹20,000, assuming the insurer keeps the base premium unchanged.

Common GST calculation mistakes

• Taking a percentage of the inclusive price. To find the tax inside ₹1,180 at 18%, divide by 1.18; do not multiply by 18%.
• Assuming a rate cut equals the same price cut. 28% to 18% is a 7.81% drop in the final price, not 10%.
• Charging CGST + SGST on an inter-state sale. Sales to another state use IGST.
• Using the old 12% or 28% slab by habit. Most items in those slabs moved. Only a handful of entries remain at older rates, so check each code.
• Rounding each line differently. Round consistently, usually to two decimals per line, then total.

Frequently asked questions

This guide is general information, not tax advice. GST rates are set by notification and can change; confirm the rate for your HSN/SAC code on cbic-gst.gov.in or with a GST practitioner.