Who this affects: any business that bills goods or services under GST, especially traders, manufacturers and hotels or wellness operators.
What changed
As per the Council's press release dated 3 September 2025, the earlier multi-tier structure was replaced by two main rates: 5% (merit) and 18% (standard), with a 40% de-merit rate for a select few goods and services. Rate changes for most goods and services took effect on 22 September 2025.
- Moved to 5%: many packaged foods, handicrafts, agricultural machinery, renewable energy devices, hotel rooms up to Rs 7,500 per unit per day, and gyms and salons.
- Moved to 18%: air conditioners, televisions, small cars, cement and auto parts.
- Moved to nil: UHT milk, pre-packaged paneer and certain life-saving drugs. Individual life and health insurance policies were exempted.
- Moved to 40%: pan masala, some tobacco products, certain beverages and some larger motor cars. Tobacco products stay at existing rates and cess until the compensation cess obligations are discharged.
What to do in your books
- Update item masters and rate tables in the billing or accounting software, and check invoices dated on or after 22 September 2025.
- Review stock and open orders: price lists, contracts and e-invoicing templates need the new rate.
- Check the credit position where an input is taxed at a higher rate than the output. Inverted duty claims need a fresh working.
- Confirm the HSN-wise rate against the notification, not a summary table. The press release annexures contain item-level detail, and at least one item (paratha and parotta against chapati and roti) is treated differently in the text and the annexure.
Our view
Treat the rate change as a systems and contract exercise first and a pricing exercise second. A wrong rate on a few hundred invoices creates a reconciliation problem in GSTR-1 and GSTR-3B that is expensive to unwind later.
Sources and verification
Verified on 6 Nov 2026 against the sources below. Laws and notifications change, so confirm the current position before acting.
Need this applied to your business? Talk to CA Nimesh Hariya about your virtual CFO and compliance needs.