GST Slabs Breakdown: 5%, 18%, and All GST Rate Categories
Quick Summary
- India's GST uses a multi-tier slab system. As of the GST 2.0 reform (September 22, 2025), the primary slabs are 0%, 5%, 18%, and 40% - replacing the old five-tier structure of 0%, 5%, 12%, 18%, and 28%.
- The 12% slab was effectively eliminated: 99% of its items moved to 5% (dairy, personal care, packaged snacks, medical devices) and the remainder to 18% (textiles above ₹2,500, select services).
- The 28% slab was restructured: ~90% of items moved to 18% (ACs, TVs, small cars), while luxury/sin goods escalated to the new 40% slab.
- The 0% nil-rated category expanded significantly - individual health and life insurance premiums (previously 18%), 33 lifesaving medicines (previously 12%), and educational stationery are now nil-rated.
- The 40% slab covers luxury and sin goods: aerated beverages, luxury cars, motorcycles above 350cc, tobacco, cigars, and casino/gambling admissions.
- Special rates of 3% (gold, jewelry, precious metals) and 0.25% (rough diamonds) remain unchanged by the reform.
- Nil-rated, exempt, and zero-rated are legally distinct categories with different Input Tax Credit implications - knowing the difference prevents costly compliance errors.
- The correct GST rate is always determined by the item's HSN code (goods) or SAC code (services) - product names alone are not sufficient.
- For intra-state supplies, tax splits as CGST + SGST; for inter-state supplies, as IGST - the total rate is identical regardless of split.
- BUSY Accounting Software auto-maps items to HSN/SAC codes, applies the correct post-September 2025 rate, and keeps every invoice compliant without manual rate lookups.
India's GST Slab System: Overview
The Goods and Services Tax (GST) in India is a multi-tier tax system where every supply of goods or services is taxed at one of several prescribed rates - called GST slabs. These slabs exist to:
- Keep taxes low on essential commodities that affect household budgets
- Apply a standard rate on most common goods and services
- Tax luxury and demerit goods at a higher rate to discourage consumption and generate revenue
GST replaced 17 central and state taxes when it was introduced on July 1, 2017. Since then, the slab structure has been revised multiple times, culminating in the landmark GST 2.0 reform on September 22, 2025.
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Key Terms You Should Know
| Term | Meaning |
|---|---|
| GST Slab | The prescribed tax rate applied to a goods or service category |
| HSN Code | Harmonized System of Nomenclature - the classification code for goods |
| SAC Code | Service Accounting Code - the classification code for services |
| Output GST | GST you collect from your customers on sales |
| Input Tax Credit (ITC) | Credit of GST paid on purchases, offset against your output GST liability |
| Classification | Matching your product or service to its correct HSN/SAC code and corresponding rate |
| Nil-rated | Goods/services in the GST schedule with a 0% rate |
| Exempt | Goods/services not covered by GST at all (by notification or Schedule III) |
| Zero-rated | Exports and SEZ supplies - 0% GST but ITC refund is available |
GST 2.0 Reform: What Changed on September 22, 2025
The 56th GST Council meeting (September 3, 2025) approved a comprehensive rationalisation of India's GST slab structure, effective September 22, 2025 - the most significant overhaul since GST's introduction in 2017.
| Category | Before September 22, 2025 | From September 22, 2025 |
|---|---|---|
| Number of main slabs | 5 main slabs - 0%, 5%, 12%, 18%, 28% | 4 main slabs - 0%, 5%, 18%, 40% |
| 12% slab | Active - covered items like dairy, snacks, clothing, and medicines | Eliminated |
| 28% slab | Active - covered items like ACs, cars, TVs, and tobacco | Restructured - most items moved to 18%, while luxury and sin goods moved to 40% |
| 40% slab | Did not exist | Introduced for luxury and sin goods |
| Health and life insurance | 18% | Nil (0%) |
| Lifesaving medicines | 12% | Nil (0%) |
| Personal care items like shampoo and toothpaste | 18% | 5% |
| Dairy items like butter, ghee, and cheese | 12% | 5% |
| ACs, large TVs, and dishwashers | 28% | 18% |
| Luxury cars and motorcycles above 350cc | 28% | 40% |
| Aerated and carbonated beverages | 28% | 40% |
Key metric: 99% of items in the old 12% slab moved to 5%. Approximately 90% of items in the old 28% slab moved down to 18%, while the remaining ~10% escalated to the new 40% luxury tier.
The reform was framed by the government as relief for common households - reducing the tax burden on daily essentials while maintaining or increasing taxation on luxury and discretionary consumption.
Legal basis: 14 notifications issued on September 17, 2025 (CTR series 09/2025 through 16/2025) implement the reformed rate schedules across goods and services.
0% GST: Nil-Rated and Exempt Supplies
Not all goods and services attract GST. A significant category - covering essentials that affect every household - is taxed at 0% or fully exempted from GST.
Items at 0% / Nil-Rated (Effective September 22, 2025)
Fresh Food and Agricultural Produce
- Fresh vegetables and fruits (unprocessed)
- Fresh and pasteurised milk (loose and packaged)
- Eggs
- Unpackaged rice, wheat, flour, pulses
- Fresh meat and fish (unprocessed)
- Curd, lassi, buttermilk (unpackaged)
Ready-to-Eat Staples (Newly Nil-Rated)
- Pre-packaged chapati, roti, parantha, khakhra
- Pre-packaged pizza bread (plain, unflavoured)
Healthcare - Newly Nil-Rated (Previously 12%-18%)
- Individual life insurance premiums (previously 18%)
- Individual health insurance premiums (previously 18%)
- 33 specified lifesaving medicines (previously 12%), including cancer and rare disease treatments
Education and Stationery - Newly Nil-Rated (Previously 12%)
- Pencils, erasers, sharpeners, chalk
- Exercise books, practice books, notebooks
- Maps, globes, educational charts
Other Nil-Rated Items
- Printed books (educational and others)
- Hearing aids and assistive devices
- Contraceptives
- Sanitary napkins
5% GST Slab: Goods and Services
The 5% slab is the merit rate - applied to items that are regularly used by households and essential to daily life, but which carry some degree of processing or value-addition beyond raw agricultural produce.
Goods at 5% GST
Dairy and Processed Foods
- Butter, ghee, cheese, condensed milk, flavoured milk (moved from 12%)
- Edible vegetable oils, fats
- Pasta, noodles, macaroni (moved from 12%)
- Jam, jelly, ketchup, mayonnaise, tomato paste (moved from 12%)
- Packaged fruit juices and drinks (moved from 12%)
- Biscuits, wafers, chocolates (moved from 12%)
- Bhujia, namkeen, snack foods (moved from 12%)
- Baby food and preparations
Personal Care and Hygiene (moved from 18%)
- Shampoo, hair oil, conditioner
- Toothpaste, toothbrushes
- Toilet soap, bath soap, hand wash
- Shaving cream, razors
- Baby diapers and sanitary products (some categories)
Household Goods (moved from 12%)
- Tableware, kitchenware (plates, cups, cutlery)
- Candles, wax products
- Umbrellas, walking sticks
- Sewing needles and accessories
- Bamboo furniture and bamboo products
- Leather goods (wallets, bags)
Healthcare Products (moved from 12%)
- Thermometers, glucometers
- Medical gloves, surgical masks
- Spectacles, lenses, frames
- Diagnostic test kits
- Oxygen equipment (non-industrial)
Agriculture and Farming
- Tractors (up to 1800cc engine capacity) (moved from 12%)
- Agricultural machinery - sprinklers, irrigation systems, harvesters
- Bio-pesticides, bio-fertilizers
- Hydraulic pumps for agricultural use
- Seeds, plants, and saplings
Construction Materials
- Fly ash bricks, sand lime bricks
- Natural sand, gravel, stone
- Finished leather and leather products
- Basic tiles and ceramic products
Other
- Solar cookers, solar panels (some categories)
- Coal tar, briquettes, lignite (select types)
- Ready-made garments and textiles up to ₹1,000 per piece
Services at 5% GST
- Regular restaurant services (non-AC, non-alcoholic serving) - Note: Restaurants in 5-star hotels charge 18%
- Economy-class air travel - passengers booked in economy
- Rail transport (second-class sleeper and above, excluding AC tiers)
- Certain healthcare services not otherwise exempt
- Tailoring and beauty parlour services (specific conditions)
- Supply of food/drinks by canteens in educational institutions
18% GST Slab: Goods and Services
The 18% slab is now the standard rate - the single largest slab by number of goods and services. It covers most consumer durables, electronics, automobiles (non-luxury), and the majority of professional and business services.
Goods at 18% GST
Consumer Electronics and Appliances (moved from 28%)
- Air conditioners (window and split)
- Refrigerators and freezers
- Washing machines and dryers
- Dishwashing machines
- Televisions above 32 inches, monitors, projectors
- Microwave ovens
- Electric fans, coolers
Information Technology and Equipment
- Laptops, desktops, tablets
- Mobile phones and accessories (some categories)
- Computer peripherals - printers, scanners, keyboards, mice
- CCTV cameras and security systems
- Audio equipment - speakers, headphones
Automobiles (moved from 28%)
- Petrol/CNG cars up to 1200cc engine capacity
- Diesel cars up to 1500cc engine capacity
- Motorcycles and scooters up to 350cc
- Buses, trucks, ambulances
- Auto parts, tyres, tubes
Textiles and Apparel
- Ready-made garments priced above ₹2,500 per piece (moved from 12%)
- Synthetic and man-made fibres
- Industrial fabrics and technical textiles
Construction and Metals
- Cement, plaster, concrete mix (some types)
- Iron and steel products
- Copper, brass, aluminium products
- Paints, varnishes, lacquers
- Plumbing materials, pipes, fittings
- Electrical fittings and wiring materials
Industrial and Chemical Products
- Chemicals, polymers, plastics
- Rubber and rubber products
- Paper and paper products
- Glass and glassware
- Machinery and mechanical equipment
- Mining equipment and tools
Other
- Coal and lignite (moved from 5%)
- Graphic paper and art paper (moved from 12%)
- Cricket match tickets (moved from 12%)
- Beedi (traditional tobacco product, moved from 28%)
Services at 18% GST
- IT and software services (development, maintenance, cloud, SaaS)
- Professional services - consulting, legal, accounting, marketing, HR
- Financial services - banking charges, processing fees, brokerage
- Telecom services - mobile, broadband, DTH
- Business support services - BPO, KPO, shared services
- Repair and maintenance (most categories)
- Commercial property rental (office, retail, warehouse)
- Hotel accommodation above ₹7,500 per night
- Restaurant services in 5-star hotels and restaurants serving alcohol
- Transport services - freight forwarding, logistics, courier (moved from 12%)
- Job work services - processing on behalf of principal manufacturers (moved from 12%)
- Construction services (works contract for commercial properties)
- Event management and catering services
40% GST Slab: Luxury and Sin Goods
The 40% slab is new to India's GST framework, introduced as part of the September 2025 reform. It replaces the old 28% GST + Compensation Cess structure for luxury and demerit goods, consolidating the tax into a single rate.
Goods at 40% GST
Luxury Vehicles (moved from 28%)
- Motorcycles above 350cc engine capacity
- Cars above 1200cc petrol / 1500cc diesel thresholds (mid-size and large segment)
- Hybrid vehicles in higher engine ranges
- SUVs and luxury passenger vehicles
- Aircraft and helicopters (personal/leisure use)
- Yachts, motorboats, sport vessels
Tobacco and Related Products (most moved from 28%)
- Cigarettes and cigars
- Tobacco for smoking and chewing
- Gutkha
- Hookah tobacco
Beverages (moved from 28%)
- Aerated carbonated drinks (cola, lemon, fruit-based)
- Caffeinated non-alcoholic beverages (energy drinks)
- Sugared beverages
Entertainment and Gaming
- Casino admission and gambling activities
- Betting and wagering services
- Online gaming (non-skill based)
Firearms
- Revolvers and pistols (civilian category)
Note on Pan Masala and some tobacco: Certain pan masala and tobacco products with a complex Compensation Cess history are being handled under separate notifications due to ongoing cess settlement arrangements. Check the specific CBIC notification for your product category.
Special GST Rates: 3% and 0.25%
Two categories of goods attract special rates outside the main slabs, unchanged by the September 2025 reform:
3% GST - Precious Metals and Jewellery
| Items | GST Rate |
|---|---|
| Gold (bar, coin, jewellery) | 3% |
| Silver (bar, coin, jewellery) | 3% |
| Platinum and other precious metals | 3% |
| Diamond jewellery (finished/set) | 3% |
| Semi-precious stones (set in jewellery) | 3% |
| Imitation jewellery | 3% |
The 3% rate applies regardless of whether the gold or silver is in primary form (bar, coin) or fabricated as jewellery. Making charges for jewellery attract an additional 5% GST as a service component.
0.25% GST - Rough Diamonds
| Items | GST Rate |
|---|---|
| Rough diamonds (uncut) | 0.25% |
| Industrial diamonds (unprocessed) | 0.25% |
| Rough semi-precious and precious stones | 0.25% |
The exceptionally low 0.25% rate supports India's diamond processing and export industry - particularly the Surat diamond cutting and polishing sector - by minimising GST burden at the raw material import/procurement stage.
Composition Scheme Special Rates
Businesses eligible for the GST Composition Scheme (turnover below the prescribed threshold) can opt for flat quarterly tax rates instead of regular slab rates:
| Taxpayer Type | Composition Rate |
|---|---|
| Traders and manufacturers | 1% (0.5% CGST + 0.5% SGST) |
| Restaurants and food service | 5% |
| Service providers (small) | 6% |
Composition taxpayers cannot claim ITC and cannot charge GST on their invoices to customers.
GST Rate Migration Table: Before and After September 2025
Major Rate Reductions
| Product / Service | Rate Before Sept 22, 2025 | Rate After Sept 22, 2025 |
|---|---|---|
| Individual health insurance premium | 18% | 0% (Nil) |
| Individual life insurance premium | 18% | 0% (Nil) |
| 33 specified lifesaving medicines | 12% | 0% (Nil) |
| Pencils, erasers, chalk, notebooks | 12% | 0% (Nil) |
| Pre-packaged chapati, roti, parantha | 5%/12% | 0% (Nil) |
| Butter, ghee, cheese | 12% | 5% |
| Bhujia, namkeen, snack foods | 12% | 5% |
| Pasta, noodles, biscuits | 12% | 5% |
| Ketchup, jam, mayonnaise, sauces | 12% | 5% |
| Shampoo, hair oil | 18% | 5% |
| Toothpaste, toothbrush | 18% | 5% |
| Toilet soap | 18% | 5% |
| Thermometers, glucometers | 12% | 5% |
| Spectacles frames and lenses | 12% | 5% |
| Tractors (up to 1800cc) | 12% | 5% |
| Clothes priced up to ₹1,000 | 5% | 5% (unchanged) |
| Air conditioners | 28% | 18% |
| Washing machines, dishwashers | 28% | 18% |
| Televisions (large) | 28% | 18% |
| Small petrol cars (≤1200cc) | 28% | 18% |
| Small diesel cars (≤1500cc) | 28% | 18% |
| Motorcycles ≤350cc | 28% | 18% |
| Buses and trucks | 28% | 18% |
| Auto spare parts | 28% | 18% |
| Job work services | 12% | 18% |
| Courier and transport services | 12% | 18% |
Major Rate Increases
| Product / Service | Rate Before Sept 22, 2025 | Rate After Sept 22, 2025 |
|---|---|---|
| Aerated/carbonated beverages | 28% | 40% |
| Luxury cars, large SUVs | 28% | 40% |
| Motorcycles above 350cc | 28% | 40% |
| Cigars, cigarettes | 28% | 40% |
| Casino, gambling, betting | 28% | 40% |
| Coal and lignite | 5% | 18% |
| Clothes priced above ₹2,500 | 12% | 18% |
| Graphic/art paper | 12% | 18% |
Nil-Rated vs Exempt vs Zero-Rated: Key Differences
Many businesses confuse nil-rated, exempt, and zero-rated supplies. They are legally distinct, with significantly different ITC consequences:
| Feature | Nil-Rated | Exempt | Zero-Rated |
|---|---|---|---|
| GST charged? | No (0% in GST schedule) | No (excluded from GST by notification) | No (0% applied) |
| ITC on inputs claimable? | No - must be reversed | No - must be reversed | Yes - ITC refund available |
| Where declared in GST return? | GSTR-1 (Table 8 - nil-rated supplies) | GSTR-1 (Table 8 - exempted supplies) | GSTR-1 (Table 6A for exports) |
| Examples | Fresh vegetables, milk, eggs | Electricity, alcohol (state tax), petroleum products | Exports, supplies to SEZ units/developers |
| Impact on ITC | Proportionate ITC reversal required under Rule 42/43 | Proportionate ITC reversal required | No reversal - full refund claimable |
Why this matters for compliance: If your business makes a mix of taxable and exempt/nil-rated supplies, you must reverse the ITC attributable to exempt/nil-rated supplies at the end of each tax period. Failure to do so attracts interest and penalties. Zero-rated supplies (exports) do not require ITC reversal - in fact, you can claim a cash refund of input credits against export supplies.
This is one of the most common compliance mistakes because many businesses treat every 0% supply the same way. A better understanding of GST exemptions helps avoid wrong ITC assumptions and return reporting errors.
How GST Slabs Affect Pricing and Business Costs
For Consumers
The GST slab directly determines the final price you pay. The same base price attracts very different final prices depending on classification:
| Base Price | GST at 0% | GST at 5% | GST at 18% | GST at 40% |
|---|---|---|---|---|
| ₹500 | ₹500 | ₹525 | ₹590 | ₹700 |
| ₹1,000 | ₹1,000 | ₹1,050 | ₹1,180 | ₹1,400 |
| ₹10,000 | ₹10,000 | ₹10,500 | ₹11,800 | ₹14,000 |
| ₹1,00,000 | ₹1,00,000 | ₹1,05,000 | ₹1,18,000 | ₹1,40,000 |
For Businesses
The impact on a registered business depends on whether ITC is available:
When ITC is available (most B2B scenarios):
GST on your purchase becomes a credit against your output GST liability. The slab rate matters for cash flow (higher rate = more cash outflow at purchase) but net cost is neutral - the tax is a pass-through.
When ITC is blocked or restricted:
GST becomes a real cost. Common ITC-blocked scenarios: purchases for personal consumption, motor vehicles for non-commercial use, food and beverages (not for resale), membership club fees, and inputs attributable to exempt/nil-rated supplies.
Rate mismatch impact:
If your output rate (what you charge customers) is lower than your input rate (what you pay suppliers), you accumulate excess ITC, which you can carry forward or claim as a refund in certain cases (e.g., exports).
Input Tax Credit (ITC) Across GST Slabs
ITC is available on inputs used for taxable business supplies, irrespective of which slab the input falls in - subject to the standard conditions under Section 16 of the CGST Act.
| Scenario | ITC Available? |
|---|---|
| Input at 18%, output at 18% | ✅ Yes - straightforward offset |
| Input at 18%, output at 5% (inverted duty) | ✅ Yes - excess ITC eligible for refund in some cases |
| Input used for exempt/nil-rated supplies | ❌ No - proportionate reversal required |
| Input used for 0% exports | ✅ Yes - ITC claimable and refund available |
| Motor vehicle purchase (for internal use) | ❌ Blocked under Section 17(5) |
| Catering/food for employee welfare | ❌ Blocked under Section 17(5) |
| Composition scheme taxpayer | ❌ Not applicable - composition taxpayers pay flat rate, no ITC |
Inverted duty structure: When you pay GST at a higher rate on inputs than the rate at which you charge on outputs (e.g., raw material at 18%, finished product at 5%), you can claim a refund of the accumulated ITC under Rule 89(5) of the CGST Rules.
How to Include GST in Your Invoices
Step 1: Identify Supply Type
Determine whether you are supplying goods or services. This determines whether you look up an HSN code or an SAC code.
Step 2: Find the Correct Classification Code
Goods: Use the HSN code for your product. HSN is a 4-8 digit number. 6-8 digits are required on invoices when annual turnover exceeds ₹5 crore.
Services: Use the SAC code (4-6 digits). SAC code must be mentioned on all service invoices.
Step 3: Verify the Current GST Rate
Apply the rate as currently notified for your HSN/SAC - not based on product name, trade name, or category assumption. Post-September 2025, verify that your product's rate has not changed in the GST 2.0 restructuring.
Step 4: Determine IGST or CGST + SGST
| Supply Type | Tax Structure | Example (18% GST) |
|---|---|---|
| Intra-state (seller and buyer in same state) | CGST 9% + SGST 9% | ₹900 + ₹900 = ₹1,800 on ₹10,000 base |
| Inter-state (different states) | IGST 18% | ₹1,800 on ₹10,000 base |
Total tax is identical in both cases - the split determines which government (centre vs state) receives the tax.
Step 5: Issue the Invoice with Mandatory Fields
Every GST invoice must include:
- Supplier GSTIN, legal name, and address
- Buyer GSTIN and address (for B2B)
- Invoice number and date
- HSN/SAC code for each line item
- Taxable value and GST amount (CGST/SGST or IGST)
- Total invoice value
Common Mistakes to Avoid
1. Using slab rates without verifying the HSN/SAC code
The rate applies to the HSN/SAC classification, not the product name. An item that sounds like it belongs in the 5% category may classify at 18% based on its processing level, packaging, or form.
2. Not updating rates after GST 2.0 (September 22, 2025)
Hundreds of items changed rates on September 22, 2025. If your accounting software or item master wasn't updated, you may have been charging customers incorrect GST for months. Audit your item list against updated notifications.
3. Applying 5% to restaurant services in 5-star hotels
Restaurant services in 5-star hotels, or restaurants with liquor service, attract 18% - not 5%. The standard 5% restaurant rate applies only where alcohol is not served.
4. Claiming ITC on items at 0% rate
If you purchase goods/services that attract 0% GST (nil-rated or exempt), there is no input tax to claim. If those purchases relate to your exempt supplies, you must reverse any ITC already availed on inputs attributable to them.
5. Wrong place of supply leading to incorrect tax split
Place of supply determines IGST vs CGST+SGST. Getting this wrong means the wrong government gets the tax - which creates mismatches during GST return filing and reconciliation.
6. Assuming health/life insurance still attracts 18%
Since September 22, 2025, individual health and life insurance premiums are nil-rated. If your system still applies 18% GST on insurance invoices, this is an error - update your SAC mappings.
7. Treating all 28% items as unchanged
28% was not simply replaced by one rate. Most items moved to 18%; a minority escalated to 40%. Check each item's specific notification rather than assuming a blanket rate change.
Where businesses manage a large item master, rate errors often begin with poor product mapping rather than the invoice itself. Inventory management software helps keep stock items, classifications, and GST treatment more consistent across transactions.
How BUSY Accounting Software Can Help
BUSY's built-in GST compliance engine simplifies the complexity of India's multi-slab system:
- Updated rate master post September 2025: BUSY's HSN/SAC rate database reflects all GST 2.0 changes - every item moved from 12% to 5%, 28% to 18%, and new 40% categories are pre-loaded.
- Auto HSN/SAC mapping: Assign HSN or SAC codes to items once during setup; BUSY auto-applies the correct rate every time that item appears on an invoice.
- IGST/CGST/SGST auto-split: Based on the supplier state and buyer state, BUSY automatically determines whether the supply is intra-state or inter-state and splits the tax accordingly.
- ITC reconciliation: BUSY tracks your input and output tax across all slabs, flags inverted duty positions, and identifies where ITC reversal is required for exempt or nil-rated supplies.
- GSTR-1 and GSTR-3B auto-population: All invoices raised in BUSY auto-populate the correct tables in your GST returns - nil-rated supplies in Table 8, exports in Table 6A, B2B in Table 4.
- Composition scheme support: BUSY handles flat-rate composition filing (quarterly CMP-08 and annual GSTR-4) separately from regular taxpayer compliance.
Conclusion
GST slabs directly affect your pricing, invoicing, input tax credit, and overall compliance. With major rate changes after September 2025, businesses need to move beyond guesswork and apply GST based on the correct HSN or SAC classification every time. Even a small rate error can lead to incorrect billing, ITC mismatches, and return-filing issues. That is why it is important to keep your tax setup up to date and use a system that automatically applies the correct rate. With the right process and tools, businesses can stay compliant, reduce manual mistakes, and manage GST more confidently
