New GST Slabs 2026: 5%, 18% and 40% Explained
• By AskSolique.ai Team • Tax & Regulatory
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
| Slab | Broad coverage |
|---|---|
| 0% (Nil) | Fresh produce, dairy, essential medicines, educational materials |
| 5% | Daily essentials, processed foods, agricultural goods, healthcare equipment |
| 18% | Most goods and services, electronics, small cars, appliances |
| 40% | Luxury and sin goods, high-performance vehicles, carbonated beverages |
| 3% | Precious metals and jewellery |
| 0.25% | Rough and industrial diamonds |
| 40% | Pan masala and tobacco (from 1 February 2026; previously 28% transitional) |
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
Frequently Asked Questions
When did the new GST rates take effect?
22 September 2025.
Is the 12% slab gone?
Yes. The structure was rationalised around 5% and 18%, with 40% for luxury and demerit goods. Items formerly at 12% moved to 5% or 18%.
Is there still a 28% GST rate?
No. The transitional 28% applied only to pan masala and tobacco, and those goods moved to 40% from 1 February 2026. The main slabs are 0%, 5%, 18% and 40%, with special rates of 3% on precious metals and 0.25% on rough diamonds.
What is the GST rate on tobacco and pan masala in 2026?
40%, with effect from 1 February 2026, following notification of nil compensation cess on those goods.
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