GST 2.0 Rate Changes in India: New Slabs Effective 22 September 2025

On 3 September 2025 the GST Council recommended the biggest rate overhaul since GST was introduced in 2017. The four-rate structure (5%, 12%, 18%, 28%) was collapsed into a two-tier 5%/18% system plus a 40% rate on sin and luxury goods. CBIC rate notifications brought the changes into force from 22 September 2025 (PIB, 2025).

For an SMB, this isn't a paperwork update — it shifts margins, invoice formats, ITC chains, and pricing. This post walks through what changed, which categories moved where, and the exact steps to reconcile your books before your next return.

What exactly did the 56th GST Council change?

The 56th Council meeting recommended a "Next-Gen GST Reform" — a merit slab of 5%, a standard slab of 18%, and a demerit slab of 40%. The 12% slab was eliminated entirely; most goods there moved to 5% or 18%. The 28% slab disappeared too, with luxury/sin items absorbed into the new 40% rate (PIB, 2025).

Tobacco products, pan masala, and gutka were kept under the compensation cess regime temporarily with separate effective dates published via subsequent CBIC notifications (A2Z Taxcorp, 2025). For everything else, 22 September 2025 is the cutover date.

Which categories moved where?

Most daily-use FMCG that sat at 12% moved to 5% — items like packaged paneer, butter, ghee, processed snacks, and certain personal-care SKUs. Several auto and electronics categories that sat at 28% landed at 18%. Sin goods and high-end cars climbed to the new 40% rate (PIB FAQs, 2025).

The exact HSN-by-HSN list runs to hundreds of entries — refer to the CBIC notifications page for SKU-level lookup. The summary: re-check every HSN you sell. Assume nothing — including that "my product stayed the same" — without verifying.

The bigger commercial impact is on B2B contracts with pre-set tax-inclusive prices. If your customer demands tax-inclusive billing and your product dropped from 12% to 5%, your top-line revenue rises (or you renegotiate). If your product moved from 18% to 40%, you absorb the hit unless you re-price. Most contracts don't say.

How is the applicable rate decided during transition?

Section 14 of the CGST Act, 2017 governs the time-of-supply rule for rate changes. Three events matter: invoice date, payment receipt date, and goods/service delivery date. If two of the three are after 22 September 2025, the new rate applies. If two are before, the old rate applies. Contract date is irrelevant.

In our compliance work, the cleanest approach is: issue an addendum/credit note for any pre-22-Sep contract still being executed, and re-invoice at the new rate. For services delivered partly before and partly after, split the invoice. Don't average the rate.

What should an SMB do this week?

Five steps. First, pull a SKU list with HSN codes and the rate you've been charging. Second, cross-check each HSN against the latest CBIC rate notification. Third, update masters in Tally/Zoho/Marg/Busy. Fourth, re-print invoices, rate cards, and marketplace catalogues. Fifth, brief your sales team — customers will ask.

In the first week of October 2025, several of our clients found that their accounting tool's auto-classification still used the old slab map. Even after the master update, historic products kept billing at old rates because the rate was hard-coded against the SKU, not the HSN. Audit your invoice template — the rate should pull from the HSN master, not the SKU record.

Pair the rate update with your ITC reviewso blocked credits aren't carried forward against the wrong slab.

How does GST 2.0 affect e-commerce sellers?

E-commerce sellers face two issues simultaneously: their own product rate changed, and the TCS regime on marketplaces stayed at 0.5% (after the 53rd Council reduction). When a marketplace pre-calculates GST on the buyer side, the seller must align the new rate before the order ships — otherwise the TCS reconciliation in Form GSTR-8 doesn't tie.

For platform-specific impact, see our guides for Amazon sellers, Flipkart sellers, and e-commerce sellers in general.

What is the impact on returns and credit notes?

Sales returns booked after 22 September 2025 against pre-22 invoices must carry the old rate on the credit note. The Invoice Management System (IMS) flags rate mismatches in GSTR-2B (ClearTax, 2025). If you process a credit note at the new rate against an old invoice, the buyer's ITC reverses automatically — leading to support tickets and reconciliation drag.

Map every open invoice to its original rate before issuing credit notes. Most ERP systems need a custom field to capture this until the books close for FY 2025-26.

Frequently asked questions

When is the GST 2.0 effective date?

22 September 2025, via CBIC rate notifications that superseded Notification 01/2017-CT (Rate). Specified tobacco products have a slightly later effective date and remain under the compensation cess regime (A2Z Taxcorp, 2025).

Which slabs were abolished?

The 12% and 28% slabs were abolished. Items previously at 12% moved largely to 5%, with some shifting to 18%. Items at 28% mostly moved to 18%, while luxury and sin goods (high-end cars, tobacco, aerated drinks) moved to the new 40% demerit rate.

What rate applies to a contract signed in August 2025 but invoiced in October 2025?

Section 14 of the CGST Act decides the rate using time of supply — invoice date, payment date, and delivery date. If at least two of these fall after 22 September 2025, the new rate applies. Contract or PO date alone does not determine the rate.

Are tobacco and pan masala at 40% from 22 September 2025?

No. The Council recommended 40% for tobacco products, but the transition retains the compensation cess regime for now. CBIC published a separate effective date for specified tobacco products. Refer to the latest CBIC notification on the cigarettes/tobacco notification track (PIB FAQs, 2025).

Do I need to update my GST registration certificate?

No. GST 2.0 is a rate change, not a registration change. Your GSTIN, registration certificate (REG-06), and place-of-business records are unaffected. Only invoice masters and tax-code mappings need to change.

What's next?

The 56th Council also recommended Rule 14A (3-day GST registration), invoice management enhancements, and ISD compulsion — covered in detail in our GST portal changes guide. For the broader compliance calendar tying GST and income-tax dates together, see our India tax compliance calendar 2026.

Need help reclassifying SKUs, updating Tally/Zoho masters, and reconciling open POs? Our monthly GST filing service covers the full transition. Or reach out via the contact page.