New GST Slabs 2026: 5%, 18% and 40% Explained

With effect from 22 September 2025, GST moved to a rationalised structure of 0%, 5%, 18% and 40%. Many items moved down from the former 12% and 28% slabs, while luxury and demerit goods moved up to 40%. Special rates of 3% on precious metals and 0.25% on rough diamonds continue. Pan masala and tobacco initially remained on a transitional 28% and moved to 40% from 1 February 2026, once compensation cess on those goods was notified at nil.

The structure

What moved

Consumer durables including air conditioners, televisions and refrigerators moved to 18% from the previous 28%. Small cars and motorcycles up to 350cc moved down. Cement moved to 18%. Many essentials, basic toiletries, medical devices and life-saving medicines moved into the 5% band or to nil.

Moving up to 40%: carbonated and caffeinated beverages, tobacco products, gutkha and pan masala, and luxury and larger passenger vehicles.

Tobacco and pan masala were the last category to move. They were held at a transitional 28% while compensation cess obligations were being discharged. The Government notified nil compensation cess on these goods with effect from 1 February 2026, and the 40% GST rate applies from that date. Valuation for these goods also moved to a retail-sale-price basis rather than transaction value. Confirm the position for a specific tariff item against the CBIC rate notifications before pricing.

What this means beyond the rate table

Contracts spanning the change date. Where a contract was priced GST-inclusive, a rate reduction raises the question of who captures the benefit. Long-term contracts, works contracts and annual maintenance contracts all need reviewing against their tax-variation clauses.

Anti-profiteering. Where rates are reduced, the expectation is that the benefit is passed to the recipient. Businesses that absorbed a reduction into margin without adjusting price should document their pricing decisions.

Transitional stock and credit notes. Stock held at the change date, credit and debit notes for pre-change supplies, and returns of goods sold at the earlier rate all follow time-of-supply rules rather than the date of the document.

Related reading

• input tax credit conditions — GST Input Tax Credit: Conditions, Blocked Credits and Disputes
• how the rate change affects contracts — GST Rate Change: Contracts and Transitional Stock
• GST filing due dates — Compliance Calendar FY 2026-27: Income Tax, GST, FEMA and ROC

Sources

• CBIC GST rate notifications, and the notification of nil compensation cess on pan masala and tobacco effective 1 February 2026 — cbic.gov.in