India will implement major GST reforms, replacing the multi-slab system with a simplified two-rate structure of 5% and 18%, plus a 40% rate on select luxury and sin goods.

Timeline

The new GST rate structure in India will be effective from September 22, 2025. The 40% GST rate on certain products has been deferred and will only apply once pending compensation cess obligations are settled.

Impact

India’s Parliament has enacted legislation to implement the GST Council’s 56th meeting recommendations, leading to official guidelines from the Ministry of Finance confirming that the revised GST rate structure will be effective from September 22, 2025.

Context & News Update Details

In its 56th meeting, the GST Council agreed to simplify GST into two primary slabs (5% reduced, 18% standard) and introduce a 40% rate for selected luxury and sin goods.

The new 5%, 18%, and 40% GST slabs replace the previous four-tier system (5%, 12%, 18%, 28%).

Meanwhile, staple foods have been made tax-free, such as ultra-high-temperature (UHT) milk, and all Indian breads are now exempt (0% GST).

The recent “GST 2.0” rate rationalization keeps the split of taxes between the Centre and the States

India’s GST continues to operate under the dual GST model even after the September 22, 2025, reforms. This means that Central GST (CGST) and State/Union Territory GST (SGST/UTGST) are still levied concurrently on intra-state supplies, while Integrated GST (IGST) is charged on inter-state transactions (including imports).

Conclusion

Businesses selling into India must update systems to apply the correct rates. By ensuring compliance under the updated framework, foreign service providers can avoid penalties and continue serving one of the world’s largest consumer markets without disruption.

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