GST consolidates from four to two rates: standard 18% and 5% reduced; new 40% levy
India’s Goods and Services Tax Council has implemented the simplification of GST rates from 22 September 2025. This included consolidating the existing four rates – 18%; 12%; 5%; 28% – to two rates: 18% and 5%. Most supplies under the 12% rate will move to 5% – processed foods, garments, footwear, construction materials and hotels.
There is also now a higher rate of 40% on a limited range of goods, including tobacco, replacing the existing higher rate of 28%. Indian GST was introduced in 2017.
Most supplies on the old 12% rate moved to 5%. The same for man-made fibres which were on 18%. Commercial goods vehicles, at the old 28%, moved to 18%.
| Category / Item | Old GST Rate | 22-Sep-25 |
| Basic food items | 5% or 12% | 0% (exempt) |
| Stationery (exercise books, pencils, maps) | 12% | 0% (exempt) |
| Select lifesaving drugs & UHT milk | 12% or 18% | 0% or 5% |
| Salon, spa, gym, wellness services | 18% | 5% |
| Hotel rooms (≤ ₹7,500/night) | 12% | 5% (no ITC) |
| Automobiles (small cars, motorcycles) | 28% | 18% |
| Electronics (TVs, ACs, appliances) | 28% | 18% |
| Luxury / sin goods (tobacco, aerated drinks) | 28% | 40% |
| Construction material | 12% | 12% |
Structural and compliance simplifications
In addition to rate reforms, Modi’s agenda is built on two other pillars:
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Structural Changes
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Correction of inverted duty structures where input taxes exceed output taxes, reducing refund delays and distortions.
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Streamlined classification of goods and services to minimise disputes.
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Long-term policy clarity to support business planning and investment confidence.
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Ease of Living and Compliance
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Simplified registration procedures.
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Pre-filled GST returns to reduce administrative work.
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Faster refunds for businesses, exporters, and small enterprises.
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Overall simplification of compliance processes, improving India’s ease of doing business rankings.
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