Goods and Services Tax rates in India were significantly restructured by the GST 2.0 rate rationalisation that took effect on 22 September 2025. For businesses, the rate that applies to a supply is not a matter of guesswork \u2014 it flows from how the goods or service is classified and which rate schedule it falls under. This article explains the current slab structure, how rates are decided through HSN and SAC classification, and what the 2025 reform changed.<\/p>\n
Following the recommendations of the 56th GST Council meeting, the rate framework was simplified around two principal slabs supported by a nil rate and a top demerit rate. As matters stand in 2026, the broad structure is:<\/p>\n
Separately, precious metals and stones continue to be taxed under their own special low rates rather than the main slabs. The exact rate for any given product or service must always be confirmed against the applicable rate notification and schedule, because the slabs above describe the framework, not the position of every individual item.<\/p>\n
A common misconception is that a business chooses its GST rate. In practice, the rate follows from correct classification. Every supply is first identified as either a supply of goods or a supply of services, and is then mapped to a code that ties it to a rate schedule.<\/p>\n
Goods are classified using the Harmonised System of Nomenclature (HSN), an internationally standardised numbering system administered through the World Customs Organization and adopted in India for both customs and GST. Each product is assigned an HSN code, and the rate schedules are organised by these codes. The number of HSN digits a taxpayer must quote on invoices and returns generally depends on turnover, with larger businesses required to report more digits.<\/p>\n
Services are classified using the Services Accounting Code (SAC), a parallel system maintained for GST purposes. Just as HSN links a product to a goods rate, the SAC links a service \u2014 for example, professional, construction or transport services \u2014 to the relevant service rate. Using the correct SAC is essential both for charging the right rate and for accurate reporting.<\/p>\n
Because classification drives the rate, disputes in GST frequently turn on whether an item has been placed under the correct HSN or SAC heading. A small change in classification can move a supply between the 5% and 18% brackets, which is why documented, defensible classification is a core compliance discipline.<\/p>\n
The headline of GST 2.0 was consolidation. Before the reform, India operated with four principal slabs \u2014 5%, 12%, 18% and 28% \u2014 alongside the nil rate and a compensation cess on certain goods. The rationalisation collapsed this into a leaner structure built around 5% and 18%, with a 40% rate at the top.<\/p>\n
The stated policy intent was to reduce the tax burden on essential and mass-consumption goods, simplify classification, and cut down the disputes that arose at the boundaries between the old middle slabs. For businesses, the practical consequence is that a large number of items changed rate on 22 September 2025, and pricing, billing systems and master data all needed to be updated accordingly.<\/p>\n
Under the earlier regime, a GST compensation cess applied over and above the tax rate on certain goods, such as some automobiles, aerated drinks and tobacco products. As part of GST 2.0, this compensation cess was substantially discontinued alongside the introduction of the 40% demerit rate, so that many luxury and demerit goods now sit under a single higher GST rate rather than a base rate plus cess.<\/p>\n
Tobacco and related products were treated as a special, transitional case. Reflecting outstanding obligations linked to the compensation cess mechanism, these items continued under their existing tax treatment for a transitional period rather than moving immediately to the new structure, with the Government indicating that replacement levies would be addressed separately. Because arrangements in this area are evolving, businesses dealing in tobacco, pan masala and similar products should verify the current position before relying on any single rate.<\/p>\n
Knowing the slabs is only the starting point. The rate that legally applies to a specific transaction depends on the precise description of the goods or service, its HSN or SAC classification, any conditions attached to a concessional rate, and whether an exemption applies. Two products that look similar to a customer can attract different rates because of how they are classified in the schedules.<\/p>\n