The simplified rate structure from 22 September 2025, and the 5% no-credit shift
GST Reform 2.0 took effect on 22 September 2025 and simplified the rate structure to four bands: 0% (essentials and exempt items), 5%, 18% and a new 40% rate for sin and luxury goods (such as tobacco, pan masala, aerated drinks and high-end vehicles). The old 12% and 28% slabs were largely folded into 5% and 18%. Just as important for service businesses, several consumer services moved to 5% with no input-tax credit, lower output GST but no recovery of GST on your costs, so the rate that applies to your supply now comes with a credit consequence to weigh.
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The four-band structure
Reform 2.0 replaced the old 5/12/18/28 structure with a cleaner set of rates.
GST rate bands from 22 September 2025
Band
Applies to (broadly)
0% / exempt
Essential foods, healthcare, education and notified exempt supplies
5%
Mass-consumption goods and several consumer services (often without input credit)
18%
The standard rate for most goods and services
40%
Sin and luxury goods: tobacco, pan masala, aerated drinks, high-end vehicles and similar
The 5% no-credit shift for services
Several consumer-facing services moved to 5% without input-tax credit (for example salons and beauty, gyms and fitness, and standalone restaurants), down from 18% with credit. This is a genuine trade-off: your output GST falls, which helps if your customers are individuals who cannot reclaim GST, but you lose the ability to recover GST on rent, equipment and supplies. For a service-heavy, low-input business the 5% rate is usually favourable; for an input-heavy one, the lost credit can outweigh the lower rate.
tipCheck the specific rate and credit position for your trade, each trade page on this site carries its own GST treatment. A lower headline rate is not automatically better once you account for the input credit you give up.
What this means in practice
Identify the correct rate for what you actually supply (goods at their HSN rate, services at their SAC rate), confirm whether input credit is available at that rate, and update your invoices and accounting to the post-22-September-2025 rates. Ignore older content quoting 12% or 28%, those bands were largely removed. If you straddle the change date in a billing period, apply the rate in force at the time of supply.
warningInvoicing at the old 12% or 28% rate after 22 September 2025 is a common Reform 2.0 error. Confirm your HSN/SAC code maps to the new band before you bill.
CGST Act 2017 + GST Council rate notifications effective 22 September 2025 (Reform 2.0)
CGST Act 2017 s.9 (levy and rates)
Frequently asked questions
What are the GST slabs now?+
Since Reform 2.0 took effect on 22 September 2025, the main bands are 0% (essentials and exempt items), 5%, 18% and 40%. The 40% rate applies to sin and luxury goods such as tobacco, pan masala, aerated drinks and high-end vehicles. The old 12% and 28% slabs were largely folded into 5% and 18%.
Why did my service move to 5% with no input credit?+
Reform 2.0 moved several consumer services (salons, gyms, standalone restaurants and others) to 5% without input-tax credit, from 18% with credit. Your output GST falls, but you can no longer recover GST on rent, equipment and supplies. Whether this helps depends on how input-heavy your business is.
Is 5% always better than 18%?+
Not necessarily. The 5% rate for many services comes without input-tax credit, while 18% usually allows credit on your costs. For a low-input service to individual customers, 5% no-credit is usually favourable; for an input-heavy business, the credit you give up at 5% can outweigh the lower rate. Compare both for your numbers.
What is the 40% GST rate for?+
It is the demerit rate introduced under Reform 2.0 for sin and luxury goods: tobacco and pan masala, aerated and sugary drinks, high-end vehicles and similar items. Most ordinary goods and services sit at 5% or 18%, so the 40% band affects only a narrow set of products.