---
title: "GST rate changes from 22 September 2025: new slabs, transition rules and what changed since"
description: "GST rates changed on 22 September 2025: 5%, 18% and 40% slabs, item-wise changes, Section 14 rules for invoices around the date, ITC and e-way bills."
canonical: https://luckpanda.app/blog/gst-rate-changes-september-2025
author: "Dhrumil Barot"
author_bio: "Dhrumil is a small-business operations and compliance expert. Dhrumil built LuckPanda so small businesses can run invoicing, inventory, accounts and compliance in one place."
published: 2026-10-16
updated: 2026-10-16
category: "Tax and compliance"
keywords: "gst rate changes september 2025"
language: en
---

# GST rate changes from 22 September 2025: new slabs, transition rules and what changed since

What the 56th GST Council changed: the 5%, 18% and 40% slabs, item-wise rate moves, which rate applies to invoices around 22 September 2025, ITC, e-way bills and the February 2026 tobacco step.

By [Dhrumil Barot](https://luckpanda.app/about#founder), Founder. Published 16 Oct 2026. Updated 16 Oct 2026. 7 min read.

**TL;DR:** The GST rate changes of September 2025 took effect on 22 September 2025. The GST Council's 56th meeting (3 September 2025) replaced the 5/12/18/28 slab structure with two main rates, 5% and 18%, plus a 40% rate for luxury and sin goods, and ended compensation cess on most goods. Tobacco followed later: from 1 February 2026 its compensation cess became nil and pan masala, cigarettes and most tobacco moved to 40% GST.

GST rate changes from September 2025 are the "GST 2.0" rate rationalisation recommended by the 56th GST Council meeting in New Delhi on 3 September 2025 and in force from 22 September 2025. The 12% and 28% slabs were removed for most goods and services: items moved to 5% (merit rate), 18% (standard rate) or 40% (special de-merit rate). According to the GST Council press release, rates changed on 391 categories of goods and 16 categories of services. The goods rates are in Notification No. 09/2025-Central Tax (Rate) dated 17 September 2025. Cigarettes, chewing tobacco such as zarda, unmanufactured tobacco and beedi kept their old GST and cess rates until 1 February 2026.

For a business, the list of new rates is only half the job. The other half is deciding which rate goes on each invoice issued around the cut-off date, what happens to input tax credit (ITC), and whether e-way bills for goods already moving need to be redone. This guide covers both, from the government's own FAQ (PIB release ID 2163560).

> This is general information, not tax advice. Check the HSN or SAC of each item against the rate notification on the CBIC website before changing your item master.

## What changed in the GST rate structure in September 2025?

The GST rate structure changed from four main slabs (5%, 12%, 18%, 28%) to two main slabs (5% and 18%) and one special slab (40%).

| Slab after 22 Sep 2025 | What goes here | Where it mostly came from |
| --- | --- | --- |
| Nil | UHT milk, pre-packaged and labelled paneer, all Indian breads, individual life and health insurance | 5%, 12%, 18% |
| 5% (merit) | Daily-use goods, food preparations, medicines, medical devices, farm machinery, textiles inputs, hotel rooms up to ₹7,500, salons and gyms | 12% and 18% |
| 18% (standard) | Most other goods and services, including cement, TVs, ACs, small cars, two-wheelers up to 350cc, auto parts | 28% and 12% |
| 40% (de-merit) | Mid-size and big cars, motorcycles above 350cc, yachts, private aircraft, aerated and other non-alcoholic beverages, betting, casinos, online money gaming | 28% plus compensation cess |

The 40% rate replaced "28% plus cess" for most luxury goods. The PIB FAQ says mid-size and big cars earlier paid 28% GST plus compensation cess of 17% to 22%; they now pay 40% with no cess. For carbonated fruit drinks, the FAQ says the GST rate rose because compensation cess ended, so that the total tax stayed at the pre-reform level.

There was no change in the GST registration threshold for goods (FAQ 2).

### Which GST rates were reduced from 12% to 5%?

Most goods in the old 12% slab moved to 5%. The PIB explainer of 4 September 2025 lists these examples:

| Item | Old rate | New rate |
| --- | --- | --- |
| Tractors | 12% | 5% |
| Tractor tyres and parts | 18% | 5% |
| Harvesters, threshers, sprinklers, drip irrigation, poultry and bee-keeping machines | 12% | 5% |
| Bio-pesticides, natural menthol | 12% | 5% |
| Marble and travertine blocks, granite blocks, sand-lime bricks | 12% | 5% |
| Bamboo flooring, wooden packing cases and pallets | 12% | 5% |
| Man-made yarn | 12% | 5% |
| Man-made fibre | 18% | 5% |
| Packaged namkeen, bhujia, sauces, pasta, chocolates, coffee | 12% or 18% | 5% |
| Soaps, shampoos, toothbrushes, toothpaste, tableware, bicycles | 12% or 18% | 5% |
| Medicines (other than nil-rated ones) | 12% | 5% |
| Medical devices, instruments and apparatus | various | 5% |
| Hotel stays up to ₹7,500 per day | 12% | 5% (no ITC) |
| Salons, barbers, gyms, health clubs, yoga | 18% | 5% (no ITC) |

Food preparations not elsewhere specified now attract 5% (FAQ 15). Plant-based milk drinks, which paid 18%, and soya milk drinks, which paid 12%, are now 5% (FAQ 13).

### Which GST rates were reduced from 28% to 18%?

The 28% slab was emptied: most of its goods moved to 18%, and luxury goods moved to 40%. From the PIB explainer:

| Item | Old rate | New rate |
| --- | --- | --- |
| Cement | 28% | 18% |
| TVs (LCD/LED) above 32 inches, air conditioners, dishwashers | 28% | 18% |
| Small cars (petrol, LPG, CNG up to 1,200cc and 4,000 mm) | 28% plus cess | 18% |
| Two-wheelers up to 350cc | 28% | 18% |
| Buses, trucks, three-wheelers | 28% | 18% |
| All auto parts | 28% | 18% |
| Mid-size and big cars | 28% plus 17% to 22% cess | 40%, no cess |
| Motorcycles above 350cc | 28% plus cess | 40% |

Not every change was a cut. Residuary job-work services, those with no specific rate notified, went up from 12% to 18% (FAQ 68). Admission to events like the IPL now attracts 40%, while recognised sporting events with tickets up to ₹500 stay exempt and those above ₹500 stay at 18% (FAQ 74 and 75).

### Which services changed rate on 22 September 2025?

Sixteen categories of services changed. The ones small businesses meet most:

- *Hotel accommodation up to ₹7,500 per unit per day:* 5% without ITC (FAQ 71). Earlier 12%.
- *Beauty and physical well-being:* health clubs, salons, barbers, fitness centres and yoga at 5% without ITC (FAQ 72). Earlier 18%.
- *Individual life and health insurance:* exempt.
- *Residuary job work:* 18%, up from 12% (FAQ 68).
- *Betting, casinos, gambling, horse racing, lottery and online money gaming:* 40% (FAQ 73).

"Without ITC" matters for pricing. A salon that drops from 18% to 5% can no longer take credit of GST paid on its inputs and rent for those services, so its net saving is smaller than 13 percentage points.

## Which GST rate applies to an invoice issued around 22 September 2025?

The rate on an invoice is decided by the time of supply under Section 14 of the CGST Act, 2017, not by the invoice date alone. Section 14 looks at three events: the date of supply, the date of invoice and the date of payment. In practice, when two of the three happened before 22 September 2025, the old rate applies; when two happened on or after it, the new rate applies.

| Supply | Invoice | Payment received | Time of supply (rate) | Section |
| --- | --- | --- | --- | --- |
| Before 22 Sep | After | After | Earlier of invoice or payment (new rate) | 14(a)(i) |
| Before 22 Sep | Before | After | Invoice date (old rate) | 14(a)(ii) |
| Before 22 Sep | After | Before | Payment date (old rate) | 14(a)(iii) |
| On/after 22 Sep | Before | After | Payment date (new rate) | 14(b)(i) |
| On/after 22 Sep | Before | Before | Earlier of invoice or payment (old rate) | 14(b)(ii) |
| On/after 22 Sep | After | Before | Invoice date (new rate) | 14(b)(iii) |

The PIB FAQ (question 4) confirms the first and third rows in its own words: for goods or services supplied before the change with the invoice issued after it, the time of supply is the earlier of payment or invoice if payment came after the change, and the payment date if payment came before.

For advances received where the supply is not complete or no invoice is issued, the FAQ (question 5) says the rate is decided by the same Section 14 rules.

### Worked example

A Pune distributor dispatched a consignment of TVs (above 32 inches) on 19 September 2025, issued the tax invoice on 23 September 2025 and received payment on 10 October 2025. Supply was before the change; invoice and payment were after it. Under Section 14(a)(i), the time of supply is 23 September 2025, the earlier of the two, so the invoice carries 18%, not 28%. On a taxable value of ₹1,00,000, GST falls from ₹28,000 to ₹18,000.

If the same distributor had issued the invoice on 20 September instead, the time of supply would be the invoice date (Section 14(a)(ii)) and 28% would apply.

## What happens to stock, ITC and e-way bills after the rate change?

The FAQ answers the four questions accountants asked most:

1. *Stock on hand:* GST is levied on supply, so goods supplied on or after 22 September 2025 carry the new rate, regardless of when you bought them (FAQ 11).
2. *ITC on earlier purchases:* if tax was charged at the rate in force at the time of that purchase, you keep the full credit (Section 16(1)); you do not re-compute it at the new rate (FAQ 6). Credit already in the electronic credit ledger can be used against any output tax under Section 49(4) (FAQ 8).
3. *Output that became exempt:* ITC can be used for supplies up to 21 September 2025; for supplies from 22 September 2025, ITC must be reversed under the CGST Act (FAQ 9). This hits items such as UHT milk and Indian breads.
4. *E-way bills in transit:* no cancellation or fresh generation is required. Under Rule 138 of the CGST Rules, the e-way bill is generated before movement starts, and bills already in transit stay valid for their original validity (FAQ 12).

On refunds: the FAQ (question 10) points to Circular No. 135/05/2020-GST dated 31 March 2020. Credit that accumulates only because the same goods were bought at a higher rate and sold after a rate cut does not qualify for an inverted duty refund under Section 54(3), because input and output are the same goods.

Returns and credit notes: when a customer returns goods after 22 September 2025 against an invoice issued at the old rate, the credit note follows the original invoice, so it carries the old rate.

## What changed for tobacco and pan masala in February 2026?

The tobacco exception ended on 1 February 2026. Notification No. 03/2025-Compensation Cess (Rate) dated 31 December 2025 set compensation cess on pan masala and specified tobacco products to nil from that date. At the same time, bidi moved to 18% GST, and pan masala, other tobacco, cigarettes and nicotine inhalation products moved to 40% GST. To keep total tax from falling, the Central Excise (Amendment) Act, 2025 raised excise duty on tobacco and a separate Health Security and National Security cess applies to pan masala, both over and above the 40% GST.

So, as of October 2026, no goods carry GST compensation cess. If your item master still has a cess column for tobacco or pan masala, it should be zero for supplies from 1 February 2026.

## How do you update invoices and your item master for the new rates?

Updating for the new GST rates means changing the rate on each HSN or SAC in your item list with an effective date, then checking open documents against Section 14.

1. Export your item list with HSN/SAC codes and current rates.
2. Map each code to its new rate from Notification 09/2025-Central Tax (Rate) for goods and the services rate notification, not from a news summary.
3. Set the new rate effective 22 September 2025 (1 February 2026 for tobacco and pan masala) and keep the old rate for earlier dates, so reissued or corrected invoices use the right one.
4. Review open quotes, sales orders and proforma invoices raised before the change. A quote at 28% that turns into an invoice in October needs re-pricing.
5. Tag advances received before 22 September to their orders, since the payment date can fix the time of supply.
6. For items that became exempt, calculate the ITC to reverse on supplies from 22 September.
7. Check hotel and salon pricing: 5% without ITC changes your cost base.
8. Keep a log of price before and after the change for key items, in case you are asked to show the cut was passed on.

To check a single line, the [GST calculator](https://luckpanda.app/tools/gst-calculator) adds 5%, 18% or 40% to a base price, and the [reverse GST calculator](https://luckpanda.app/tools/reverse-gst-calculator) splits a tax-inclusive price. For invoice layout, see the [GST invoice format](https://luckpanda.app/templates/gst-invoice-format). How ITC works in general is in the [input tax credit glossary entry](https://luckpanda.app/compliance/glossary/gst-input-tax-credit), and e-way bill rules are in [GST e-way bill](https://luckpanda.app/compliance/glossary/gst-eway-bill).

**Free tool:** [GST calculator](https://luckpanda.app/tools/gst-calculator). Add or remove GST at any rate, with the CGST, SGST or IGST split.

## Sources

- [PIB: FAQs on the decisions of the 56th GST Council (Release ID 2163560)](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2163560)
- [PIB explainer: GST Reforms 2025, 4 September 2025](https://static.pib.gov.in/WriteReadData/specificdocs/documents/2025/sep/doc202594628401.pdf)
- [GST Council: press release on the 56th meeting](https://gstcouncil.gov.in/sites/default/files/2025-09/press_release_press_information_bureau.pdf)
- [GST Council monthly newsletter, December 2025](https://gstcouncil.gov.in/sites/default/files/2026-01/monthly_newsletter_december_2025_1_0.pdf)
- [CBIC GST: CGST Act and rate notifications](https://cbic-gst.gov.in/)

## Questions

### When did the new GST rates come into effect?

The new GST rates came into effect on 22 September 2025 for all goods and services except cigarettes, chewing tobacco, unmanufactured tobacco and beedi. Those moved on 1 February 2026, when compensation cess on them became nil.

### Is the 12% GST slab removed?

Yes, for almost all goods and services. Most 12% items moved to 5% and some moved to 18%, such as residuary job work. The main structure is now 5%, 18% and 40%.

### Is the 28% GST slab removed?

Yes. Most 28% goods, including cement, ACs, TVs above 32 inches, small cars and two-wheelers up to 350cc, moved to 18%. Luxury goods such as big cars and motorcycles above 350cc moved to 40% with no compensation cess.

### What GST rate applies if goods were delivered before 22 September but invoiced after?

It depends on the payment date under Section 14(a) of the CGST Act. If payment was received after 22 September, the time of supply is the earlier of invoice or payment, so the new rate applies. If payment was received before 22 September, the payment date is the time of supply, so the old rate applies.

### Do I need to reverse ITC because of the rate change?

Only if your output became exempt. ITC on purchases taxed at the correct rate stays valid and can be used against any output tax. For supplies of newly exempt goods from 22 September 2025, the related ITC has to be reversed.

### Do e-way bills for goods in transit have to be regenerated?

No. The government FAQ says e-way bills already generated stay valid for their original validity period, and there is no requirement to cancel and regenerate them because the rate changed.

### Is there still compensation cess on any goods?

No. Compensation cess ended for most goods on 22 September 2025, and Notification 03/2025-Compensation Cess (Rate) made it nil for pan masala and tobacco from 1 February 2026.

## More guides

- [What is a credit note? When to issue one and what it must show](https://luckpanda.app/blog/what-is-a-credit-note)
- [Profit and Loss Account Format: T-Format, Vertical and Schedule III With Example](https://luckpanda.app/blog/profit-and-loss-account-format)
- [Trading Account Format: Blank Format, Worked Example and Closing Entries](https://luckpanda.app/blog/trading-account-format)

## Related tools

- [GST calculator](https://luckpanda.app/tools/gst-calculator): Add or remove GST at any rate, with the CGST, SGST or IGST split.
- [Reverse GST calculator](https://luckpanda.app/tools/reverse-gst-calculator): Find the price before GST from a GST-inclusive amount.

## About the author

**Written by [Dhrumil Barot](https://luckpanda.app/about#founder)**, Founder. Dhrumil is a small-business operations and compliance expert. Dhrumil built LuckPanda so small businesses can run invoicing, inventory, accounts and compliance in one place. [LinkedIn](https://www.linkedin.com/in/bdhrumil) · [X](https://x.com/fyidhrumil)