India moves GST to two main rates, 5% and 18%, plus a 40% de-merit rate
This page records one dated change. For the rules in India as they stand today, see the India guide →
- Jurisdiction
- India
- Tax
- GST
- Change type
- Rate change
- Status
- In force
- Impact
- Action required
- Announced
- 17 September 2025
- Effective
- 22 September 2025
- Instrument
- IN-NOTIFICATION-09-2025-to-17-2025-Central-Tax-Rate
- Authority
- GST Council / CBIC (Ministry of Finance, Department of Revenue)
- Verified
- Fetched from official source · high confidence
All GST-registered businesses in India supplying goods or services whose rate changed, with a later transition for pan masala, gutkha, cigarettes, chewing tobacco, unmanufactured tobacco and bidi.
Businesses must apply the revised GST rate schedules (Merit 5%, Standard 18%, special de-merit 40%) from 22 September 2025 for services and for all goods EXCEPT pan masala, gutkha, cigarettes, chewing tobacco products such as zarda, unmanufactured tobacco and bidi. Those goods continue at their existing GST and compensation cess rates until the compensation-cess loan and interest obligations are discharged, on a transition date to be decided by the Union Finance Minister. Consult the CBIC Central Tax (Rate) notifications that implement the 56th Council recommendations and their HSN-wise annexures.
The 56th GST Council (3 September 2025) recommended a structural overhaul of India's GST rate architecture, implemented via CBIC Notifications No. 09/2025 to 17/2025-Central Tax (Rate) dated 17 September 2025, effective 22 September 2025. The four-tier rate structure (5%, 12%, 18%, 28%) was rationalised to two principal slabs — a Merit Rate of 5% and a Standard Rate of 18% — plus a special de-merit rate of 40% for a select set of sin/luxury goods (pan masala, gutkha, cigarettes, chewing tobacco, unmanufactured tobacco and bidi to transition at a later date pending compensation cess obligations). Items previously at 12% moved predominantly to 5%; most 28%-slab goods moved to 18%. Sector highlights: cement 28%→18%; small cars and motorcycles ≤350cc 28%→18%; ACs, TVs, dishwashers 28%→18%; manmade fibre 18%→5%; manmade yarn 12%→5%; hair oil, soap, shampoo, toothbrush, toothpaste, bicycles 18%/12%→5%; Indian breads and UHT milk 5%→NIL; 33 lifesaving drugs/medicines 12%→NIL.
What changed in detail
The 56th GST Council met on 3 September 2025 and recommended replacing the four-tier structure (5%, 12%, 18% and 28%) with two main rates: a Merit Rate of 5% and a Standard Rate of 18%. A special de-merit rate of 40% applies to a select few goods and services.
Most goods at 12% moved to 5%, and most goods at 28% moved to 18%. Examples from the Council’s release:
- cement, from 28% to 18%;
- small cars, and motorcycles of 350cc or less, from 28% to 18%;
- air conditioners, televisions and dishwashers, from 28% to 18%;
- hair oil, toilet soap bars, shampoos, toothbrushes, toothpaste and bicycles, from 18% or 12% to 5%;
- manmade fibre, from 18% to 5%, and manmade yarn, from 12% to 5%;
- UHT milk and Indian breads, from 5% to nil;
- 33 lifesaving drugs and medicines, from 12% to nil.
The rates took effect on 22 September 2025 for services and for all goods except pan masala, gutkha, cigarettes, chewing tobacco products such as zarda, unmanufactured tobacco and bidi. Those goods stayed at their existing GST and compensation cess rates until the loan and interest obligations under the compensation cess account were discharged, with the date of their transition left to be notified later. CBIC put the new rates into effect through Central Tax (Rate) notifications dated 17 September 2025.
What it means
This rate structure is the base of the schedules in force today, and the largest change to Indian GST rates since 2017. The tobacco goods above moved over on their own later timetable, and later notifications can change individual rates, so check the current HSN-wise schedule for any specific item. Every earlier rate decision, such as the 54th Council’s cancer-drug cut, now has to be read against the post-September 2025 schedules.
Businesses had to re-map item master data to the new HSN-wise schedules from 22 September 2025, and the tobacco carve-out means one invoice period could carry both old and new rates. The 40% rate is a de-merit rate, not a fourth general slab. Use the HSN-wise schedules, not the press release’s examples, to confirm a particular product’s rate.
Proof
Rationalisation of the current 4-tiered tax rate structure into a citizen-friendly ‘Simple Tax’ - a 2 rate structure with a Standard Rate of 18% and a Merit Rate of 5%; a special de-merit rate of 40% for a select few goods and services
Source snapshot of the official page. Open full size ↗Archived from the official distribution · PIB press release: Recommendations of the 56th Meeting of the GST Council, 3 September 2025 · gstcouncil.gov.in