GST 2.0 Explained: The New 5%, 18% and 40% Slabs
By Dinesh Babu, Founder & Editor, PaisaCalc · Updated July 2026
On 22 September 2025, India overhauled its Goods and Services Tax, collapsing the old four-slab structure into a simpler one. Whether you run a business or simply want to understand your bills, this is the plain-English version of what changed. Rate categories can be revised over time, so always check the latest official GST notifications before relying on a specific rate for a specific product.
What changed on 22 September 2025
The old four-rate structure of 5%, 12%, 18% and 28% became a cleaner three-rate structure of 5%, 18% and 40% (alongside the existing 0% category). The 12% and 28% slabs were removed.
In broad terms, most items that were at 12% moved down to 5%, and most items that were at 28% moved down to 18% — while a new 40% rate was introduced specifically for luxury and 'sin' goods. The goal was a simpler system with fewer classification disputes.
The new slab structure
| Rate | Broad purpose | Typical examples |
|---|---|---|
| 0% | Essentials | Many food staples and some medicines |
| 5% | Everyday / mass-use goods | Common household and daily-use items |
| 18% | Standard rate | Most goods and services |
| 40% | Luxury and 'sin' goods | Tobacco, aerated drinks, high-end cars |
Why the slabs were cut
Multiple similar rates (12% and 18%, or 18% and 28%) created constant disputes over which slab a product belonged to, and added complexity to invoicing and returns. By removing the 12% and 28% slabs, GST 2.0 reduces those grey areas.
The 18% rate is now the clear standard for the bulk of goods and services, with 5% for mass-use items, 0% for essentials, and 40% reserved for a narrow set of luxury and sin categories.
What it means for consumers
Many everyday household items became cheaper as they shifted from 12% to 5%, or from 28% to 18%. For a typical family, the reform generally reduced the tax component on a range of common purchases.
At the top end, though, luxury and sin goods now attract 40%, so items like tobacco, aerated drinks and high-end vehicles can carry a heavier tax load than before. The net effect on your monthly spending depends on your particular basket of purchases.
What it means for businesses
- Simpler invoicing — fewer rates to apply and reconcile across your product lines.
- Reclassification — items previously at 12% or 28% must be mapped to their new slab; update your billing software and price lists accordingly.
- Pricing decisions — where your input or output rate changed, revisit your MRP and margins.
- Compliance — GST returns now use the simplified rate structure, but the core filing process is unchanged.
- Stay current — always confirm the exact rate for each product against the latest official GST notifications, as categories can be revised.
How to calculate GST at the new rates
To find the GST inside a tax-inclusive price, divide the total by (1 + rate). For example, on an 18% item priced at ₹1,180 inclusive of tax, the base price is ₹1,180 ÷ 1.18 = ₹1,000 and the GST is ₹180. To add GST to a base price, simply multiply by the rate — a ₹1,000 base at 5% carries ₹50 of GST for a ₹1,050 total.
Rather than do this by hand for every rate, use our GST calculator to split any amount into base price and tax, or to add GST on top, at the new 5%, 18% and 40% rates.
Frequently asked questions
- When did GST 2.0 take effect? 22 September 2025.
- What are the current slabs? 0%, 5%, 18% and 40%, after the 12% and 28% slabs were removed.
- Did everything get cheaper? No. Many items moved to lower slabs, but luxury and sin goods now sit at 40%.
- What is the standard rate? 18% applies to most goods and services.
- Where do I confirm a specific rate? Check the latest official GST notifications, as category placements can change over time.