GST Slabs Breakdown: 5%, 18%, and All GST Rate Categories

Key Terms You Should Know

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.

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

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

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:

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

Major Rate Increases

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:

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:

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.

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

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.

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