On 3 September 2025, the 56th GST Council recommended the biggest overhaul of GST rates since 2017 — informally called “GST 2.0”. The 12% and 28% slabs were scrapped, leaving two main rates (5% and 18%), a new 40% rate for a short list of luxury and sin goods, and a wider list of exempt items. The changes were notified on 17 September 2025 (Notification No. 09/2025-Central Tax (Rate) and connected notifications 11–17/2025) and took effect from 22 September 2025. This guide covers exactly what moved, which rate applies to invoices raised around the changeover, and whether you need to reverse any input tax credit.
At a glance
- New rate structure: 5% (merit) and 18% (standard) are now the two main slabs; 40% (special) applies to select luxury & sin goods. The 12% and 28% slabs are gone.
- Effective date: 22 September 2025 (tobacco, pan masala, gutka and cigarettes stay on old rates until a later notified date).
- Legal basis: 56th GST Council (3 Sep 2025); Notification No. 09/2025-CT(Rate) dated 17 Sep 2025 (full HSN-wise schedule) and Notifications 11–17/2025-CT(Rate).
- Cheaper: most 12% items dropped to 5%; big-ticket 28% items (cars, TVs, ACs, cement) dropped to 18%.
- Now nil: individual life & health insurance, and everyday food staples like roti, paneer and UHT milk.
- Which rate on a straddling invoice: decided by the time-of-supply “two-of-three” rule in Section 14 of the CGST Act (see below).
- Position as of the notifications effective 22 September 2025. Rates change after every GST Council meeting — verify the exact rate for your HSN/SAC before billing.
What actually changed: from four slabs to three
Before GST 2.0, most goods and services sat in one of four slabs — 5%, 12%, 18% and 28% — with a compensation cess on top of many 28% items. The reform collapses this into a simpler structure:
| Rate | Role | What it broadly covers |
|---|---|---|
| 5% | Merit rate | Essentials and mass-consumption goods — food, medicines, most former-12% items. Schedule I now lists ~516 goods. |
| 18% | Standard rate | Most other goods and nearly all services. |
| 40% | Special rate | A short list of luxury and “sin” goods (see below). |
| 0% / Nil | Exempt | Unbranded staples, many life-saving drugs, and — new — individual life & health insurance. |
In practice, almost everything that was at 12% moved down to 5%, and a large part of the 28% category moved down to 18%. Only a small set of items moved up.
What got cheaper: 28% → 18%
The 28% slab (plus cess, in many cases) was where consumer durables and vehicles sat. Representative movements:
| Item | Old | New |
|---|---|---|
| Air-conditioners, dishwashers | 28% | 18% |
| Televisions above 32″ (LED/LCD) | 28% | 18% |
| Washing machines & other large appliances | 28% | 18% |
| Cement | 28% | 18% |
| Small cars (petrol ≤1200cc / diesel ≤1500cc, ≤4m) & motorcycles ≤350cc | 28% + cess | 18% |
What got cheaper: 12% → 5%
Almost the entire 12% slab shifted to 5%. This is the change most small businesses will feel on day-to-day billing. Representative movements:
| Item | Old | New |
|---|---|---|
| Butter, ghee, cheese, condensed milk, dry fruits | 12% | 5% |
| Packaged/branded namkeen, sauces, pasta, chocolates & many packaged foods | 12% / 18% | 5% |
| Hair oil, shampoo, soap, toothpaste, toothbrushes | 12% / 18% | 5% |
| Footwear and apparel (up to the value thresholds below) | 12% | 5% |
| Most medicines & medical devices | 12% | 5% |
| Marble/granite blocks, sand-lime bricks, bamboo flooring, wooden packing cases | 12% | 5% |
This list is representative, not exhaustive — the authoritative source is the HSN-wise schedule in Notification 09/2025-CT(Rate). When in doubt, look up the exact rate for your product’s HSN code before you invoice.
Now exempt (0% / nil) — including insurance
A notable feature of GST 2.0 is a wider exemption list. The headline change: individual life and health insurance — including term plans, ULIPs, family-floater and senior-citizen policies — is now GST-free, down from 18%. Other newly nil or already-nil essentials include:
- Everyday food staples — roti/chapati, paratha, khakhra, pizza bread, paneer and UHT milk
- Many life-saving and specified drugs
- Notebooks/exercise books and specified education items
Important: when a supply becomes exempt (like insurance), the supplier can no longer charge GST on it — but they also lose the input tax credit attributable to that exempt supply (see the ITC section below).
What got costlier: the 40% special rate
A small “demerit” list moved to a flat 40% (with the earlier compensation cess largely folded in). It broadly covers:
- Aerated, carbonated and sugary/caffeinated drinks
- Large/luxury cars and SUVs, and motorcycles above 350cc
- Other notified luxury items (e.g. yachts, personal aircraft)
Tobacco is a special case. Cigarettes, pan masala, gutka and chewing tobacco continue on their old rates and compensation cess for now; they move to the new structure only from a later date to be notified (linked to the winding-down of cess-backed obligations). Until then, keep billing tobacco products at the pre-22 September rates.
A few items went up
Not everything fell. The main upward move small sellers should note is apparel and made-up textiles priced above a threshold:
- Garments/apparel with a sale value above ₹2,500 per piece — now 18% (items at or below ₹2,500 remain at 5%).
Which rate applies to an invoice around 22 September? (Section 14)
Rate changes always create a “straddle” problem: what if the goods went out before 22 September but you invoiced or got paid after? The answer is Section 14 of the CGST Act (change in rate of tax), which uses a simple two-of-three test based on three events:
- (a) the goods/services were supplied,
- (b) the invoice was issued,
- (c) the payment was received.
Whichever side of 22 September carries at least two of these three events decides the rate:
- Supply on 20 Sep, invoice 20 Sep, payment 25 Sep → two events (supply + invoice) are before → old rate.
- Supply on 20 Sep, invoice 24 Sep, payment 26 Sep → two events (invoice + payment) are on/after → new rate.
- Supply on 24 Sep, invoice 20 Sep, payment 19 Sep → two events (invoice + payment) are before → old rate.
Practical tip: at month-end, pull a list of every transaction where the supply date and the invoice/payment dates fall on opposite sides of 22 September, and confirm the rate you charged matches the two-of-three outcome.
Do you have to reverse input tax credit?
This is the most common worry after a rate cut — and the answer is reassuring for most businesses:
- A rate reduction alone does NOT require any ITC reversal. If you bought stock when the rate was 12% or 28% and now sell it at 5% or 18%, the credit you already claimed stays valid. There is no clawback for selling at a lower output rate.
- ITC reversal applies only where a supply became fully exempt. If you supply something that is now nil-rated/exempt (for example, an insurer on insurance premiums), the input tax credit attributable to that exempt supply must be reversed under Section 17 and Rules 42/43. Credit relating to your still-taxable supplies is unaffected.
What GST 2.0 means for your invoicing
- Update your item rates: re-check the GST% on your saved products/services and switch 12%→5% and 28%→18% where applicable, from 22 September onwards.
- Confirm by HSN/SAC: don’t rely on memory — look up the current rate for each HSN code, especially for borderline items.
- Watch the value thresholds: apparel and footwear rates depend on per-piece value, so the correct rate can differ line-to-line on the same invoice.
- Run a straddle check: for any invoice dated on/after 22 September for goods supplied earlier (or vice-versa), apply the Section 14 two-of-three rule.
- Insurance & other newly-exempt supplies: stop charging GST and review ITC attribution.
Common mistakes to avoid
- Reversing ITC unnecessarily after a rate cut — only exempt supplies trigger reversal, not rate reductions.
- Billing tobacco/pan masala at the new rate too early — these stay on old rates until separately notified.
- Applying one flat rate to a mixed apparel invoice — the ₹2,500 per-piece threshold can put two lines in different slabs.
- Ignoring the straddle rule and defaulting every late-September invoice to the new rate.
- Charging GST on now-exempt insurance or other nil-rated supplies.
Frequently asked questions
Q: When did GST 2.0 come into effect? A: The new rates apply from 22 September 2025, notified on 17 September 2025 following the 56th GST Council meeting on 3 September 2025.
Q: Are 12% and 28% completely gone? A: Yes. The two main slabs are now 5% and 18%, with a special 40% rate for a short luxury/sin list. Tobacco products are the exception and continue on old rates until separately notified.
Q: I sold old-stock bought at 12%, now taxed at 5%. Do I reverse credit? A: No. A rate reduction does not require any ITC reversal; the credit already claimed remains valid.
Q: Is health/life insurance really GST-free now? A: Yes — individual life and health insurance policies are exempt from 22 September 2025 (they earlier attracted 18%). The insurer, however, loses input credit attributable to those exempt supplies.
Q: Goods left my warehouse on 20 September but I invoiced on 24 September. Which rate? A: Apply Section 14’s two-of-three test. If two of {supply, invoice, payment} fall before 22 September, use the old rate; otherwise the new rate.
Q: Where can I check the exact rate for my product? A: Use the HSN-wise schedule in Notification 09/2025-CT(Rate), or look up the HSN/SAC directly in the tool’s rate finder before billing.
Bill at the right GST rate
Our free GST Invoice Generator lets you set the correct GST% per line item and prints a compliant tax invoice with the CGST/SGST/IGST split calculated for you. Not sure which slab an item falls in after GST 2.0? Use the built-in HSN/SAC & GST rate finder to confirm the current rate before you invoice.