The new GST rates came into force on 22 September 2025. At its 56th meeting on 3 September 2025, chaired by Union Finance Minister Nirmala Sitharaman, the GST Council replaced the old four-slab structure (5%, 12%, 18% and 28%) with two main rates, 5% and 18%, plus a special 40% rate for a short list of luxury and "sin" goods.
For buyers, many everyday goods, medicines, small cars, two-wheelers, cement and services such as salons and budget hotels became cheaper. For businesses, it meant updating HSN-wise rates in billing software, revising prices and checking input tax credit. More than a year on, this explainer sets out what changed, what followed in 2026 and what is still worth checking.
What the new GST rates are
The structure is simpler than before, but it is not a single rate. Here is how it works today.
| Rate | What it broadly covers |
|---|---|
| 0% (nil) | Fresh food, UHT milk, paneer, Indian breads, individual life and health insurance, many essential items |
| 5% | Most daily-use goods, packaged foods, medicines, many farm inputs, salons and gyms, hotel rooms up to ₹7,500 a night |
| 18% | Most other goods and services, including small cars, two-wheelers up to 350 cc, cement, ACs and large TVs |
| 40% | Luxury cars, aerated and sugared drinks, and (from 1 February 2026) tobacco and pan masala |
| 3% and others | Gold and jewellery (3%), and special rates such as on rough diamonds, which continue |
- 2main slabs, 5% and 18%
- 40%special rate for luxury and sin goods
- 22 Sep 2025new rates took effect
- 1 Feb 2026tobacco moved to 40%, cess withdrawn
Who announced it and when
The changes were recommended by the GST Council, which includes the Union Finance Minister and state finance ministers, at its 56th meeting in New Delhi on 3 September 2025. The Central Board of Indirect Taxes and Customs (CBIC) then notified the revised rates, which applied from 22 September 2025, the first day of Navratri that year.
The Council's decisions and press releases are published on gstcouncil.gov.in, and rate notifications on the CBIC GST portal at cbic-gst.gov.in. Those are the sources your accountant will use.
What became cheaper for households
Most changes were reductions. As announced by the Council in September 2025, among the headline cuts:
- Food: UHT milk, paneer and Indian breads such as roti and paratha moved to nil; butter, ghee, cheese, dry fruits and packaged namkeen moved from 12% to 5%.
- Personal care: hair oil, soap, shampoo and toothpaste moved from 18% to 5%.
- Health: individual life and health insurance became exempt; most medicines moved from 12% to 5%.
- Home and vehicles: small cars, motorcycles up to 350 cc, air conditioners, TVs above 32 inches and dishwashers moved from 28% to 18%.
- Building: cement moved from 28% to 18%.
Whether shelf prices fell by the full amount depended on each seller. The cost of everyday spending in big cities is covered in our cost of living comparison for Bengaluru, Mumbai and Delhi.
What changed for service businesses
Several local services moved to 5%, usually without input tax credit, which means the business cannot offset GST paid on its own purchases.
- Salons, barbers, gyms and yoga centres: 18% to 5% without input tax credit. If you run a salon, check that your billing software shows the new rate.
- Hotels: rooms with a tariff of up to ₹7,500 per night moved from 12% to 5% without input tax credit. Owners of hotels and stays should also confirm the rate for rooms above that tariff.
- Restaurants: standalone restaurant services remained at 5% without input tax credit.
What changed in 2026: tobacco and compensation cess
When the Council moved to two slabs in 2025, tobacco products and pan masala were kept at their old rates (28% plus compensation cess) until the loans taken to compensate states were repaid. That changed on 1 February 2026.
From that date, as notified by the government, most tobacco products and pan masala moved to the 40% rate, and compensation cess on them was withdrawn. The government also introduced a separate cess on pan masala and raised central excise duty on tobacco, and GST on several of these goods is now calculated on the printed retail sale price.
For most businesses outside tobacco, the 2026 change matters only in one way: compensation cess has gone from almost all goods, so invoices should no longer show it. If your software still adds cess on cars or drinks, update it.
What businesses should update after the new GST rates
The rate change was over a year ago, but auditors and GST officers still check how businesses handled it. Use this list to confirm you are in order.
- HSN or SAC code and rate updated for every item in your billing software
- Old stock invoices dated on or after 22 September 2025 charged at the new rate
- Price lists, menus and websites updated with the new GST-inclusive prices
- Input tax credit reversed where you moved to a "without ITC" rate
- Compensation cess removed from invoices for goods where it no longer applies
- Contracts and quotations that straddled 22 September 2025 reviewed for the correct rate
- GST returns for September and October 2025 reconciled against your sales register
Find the code
Look up the item's HSN code (goods) or SAC code (services) on your purchase invoice.
Check the notification
Search the code in the current CBIC rate notifications.
Note the conditions
Check whether the rate applies only without input tax credit.
Update your software
Change the rate in your billing or accounting system.
Ask a professional
Confirm unusual items with a chartered accountant.
Do I need GST registration at all?
The rate changes did not change who must register. If you are new to GST, read our GST registration guide for small businesses, which covers thresholds and documents. Sellers moving online should also read how small sellers can get orders through ONDC.
Who benefits most, sector by sector
The biggest gains went to sectors where demand is price-sensitive. Vehicle dealers selling small cars and commuter motorcycles, building material suppliers selling cement, and electronics and appliance shops selling ACs and TVs all saw rates fall by ten percentage points. Insurance advisers can now sell individual life and health cover without GST.
Accountants, meanwhile, had a busy year. If you still need help reconciling returns, search chartered accountants and tax consultants near you on IndiaYP.
Final word
The new GST rates are simpler for most businesses: two main slabs, a 40% rate for a short list of goods, and from February 2026 no compensation cess on tobacco either. The work that remains is detail: correct codes, correct conditions and clean returns. Check your top-selling items against CBIC's notifications this month, and if you have not done so already, add your business to IndiaYP so customers can find you.
Frequently asked questions
What are the new GST rates in India?
GST now has two main slabs, 5% and 18%, with a special 40% rate for luxury and sin goods such as luxury cars, sugared drinks and, since 1 February 2026, tobacco and pan masala. Nil, 3% on gold and a few special rates continue. The two-slab structure took effect on 22 September 2025 after the 56th GST Council meeting.
When did the new GST rates come into effect?
The revised rates came into force on 22 September 2025. They were recommended by the GST Council at its 56th meeting on 3 September 2025 and notified by the Central Board of Indirect Taxes and Customs. Changes for tobacco and pan masala followed later, from 1 February 2026, when compensation cess on those goods was withdrawn.
Is the 12% GST slab abolished?
Yes, as a main slab. Most goods and services that were taxed at 12% moved to 5%, and a few moved to 18%. Some special rates remain for particular items, so always check the HSN or SAC code against the current CBIC notification rather than assuming every former 12% item is now at 5%.
What is the GST on salons and gyms now?
Since 22 September 2025, beauty and wellness services such as salons, barbers, gyms and yoga centres are taxed at 5%, down from 18%, but without input tax credit. That means the business cannot offset GST it pays on rent, products or equipment. Owners should work out the net effect with their accountant.
What is the new GST rate on hotel rooms?
Hotel accommodation with a tariff of up to ₹7,500 per night moved from 12% to 5%, without input tax credit, from 22 September 2025. Rooms priced above that tariff are taxed at 18%. Restaurant services remain at 5% without input tax credit. Check the conditions in CBIC's notifications before updating your billing.
What is GST on cars after the reform?
Small petrol, LPG and CNG cars with engines up to 1,200 cc and length up to four metres, and small diesel cars up to 1,500 cc and four metres, moved from 28% to 18%. Larger and luxury cars attract 40%. Compensation cess on cars was removed. Motorcycles up to 350 cc also moved to 18%.
Is health insurance GST free now?
Yes. From 22 September 2025, individual life insurance and individual health insurance policies, including family floater policies, became exempt from GST, according to the Council's decisions. Group policies may be treated differently. Ask your insurer or adviser to confirm how your policy is billed, and check the premium receipt for the GST line.
What changed in GST on tobacco in 2026?
From 1 February 2026, most tobacco products and pan masala moved to the 40% GST rate and compensation cess on them was withdrawn. The government also introduced a new cess on pan masala and raised excise duty on tobacco, and tax on several of these goods is now calculated on the printed retail price.
Do I need to update old invoices after the GST rate change?
Invoices issued before 22 September 2025 stay at the old rates. Invoices issued on or after that date should use the new rates, even for older stock. For supplies that straddled the change, the time-of-supply rules decide the rate. If you are unsure, ask a chartered accountant to review contracts and returns from that period.
Where can I check the official GST rate for an item?
Use the CBIC GST portal at cbic-gst.gov.in, which publishes rate notifications by HSN and SAC code, and the GST Council website for meeting decisions. Your purchase invoices usually show the HSN code. If an item is unusual or the rate depends on conditions, confirm it with a chartered accountant before you invoice.
Source: IndiaYP
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IndiaYP Editorial
The IndiaYP team writes practical guides and news for business owners and customers across India's states, cities and localities.
