GST 2.0 in FY 2026-27: The New 5%–18%–40% Structure and Your Compliance Checklist

The Biggest GST Overhaul Since 2017

The 56th GST Council meeting (September 3, 2025) unveiled "GST 2.0" — a simplification of the rate structure that took effect from September 22, 2025 and is now fully operative for FY 2026-27. The old 0%, 5%, 12%, 18% and 28% slabs have been consolidated into primarily two rates — 5% and 18% — with a new 40% slab for select luxury and sin goods. Niche rates (3% and 0.25% for gold, diamonds and precious stones) continue.

What Got Cheaper

• Household essentials: hair oil, shampoo, toothpaste, soap and similar items moved from 18% to 5%; specified Indian breads are now Nil-rated.
• Insurance: individual health and life insurance premiums now attract Nil GST.
• Healthcare: 33 life-saving medicines moved to Nil; several cancer and rare-disease drugs dropped from 12% to 5%; diagnostic kits, thermometers and glucometers are at 5%.
• Big-ticket goods: air conditioners, large TVs, dishwashers, small cars and motorcycles are roughly 10 percentage points cheaper.
• Agriculture: tractors, tractor tyres and parts, drip irrigation and farm machinery moved to 5%.

The New 40% Slab

Tobacco products, pan masala, aerated and caffeinated beverages, large passenger vehicles, motorcycles above 350cc, yachts, personal aircraft, casinos, online money gaming, betting and lotteries now sit at 40%. The old Compensation Cess on vehicles, ACs and tobacco has been folded into this consolidated rate. (Cigarettes, zarda, unmanufactured tobacco and beedi remain under the old cess structure until a later notified date.)

Your FY 2026-27 Compliance Checklist

• Kill the 12% rate in your systems. The 12% slab is abolished for most goods — invoices issued with 12% GST after September 22, 2025 are incorrect and attract penalties under Section 122 of the CGST Act. Audit your billing software, POS systems and rate masters.
• New invoice series: invoice, debit note and credit note numbering must restart with a fresh series from April 1, 2026.
• Exporters: file a fresh Letter of Undertaking (LUT) for FY 2026-27.
• ITC discipline unchanged: input tax credit still depends on your supplier uploading invoices to GSTR-1 and the amounts reflecting in your GSTR-2B. Reconcile monthly.
• Composition scheme: rates are unchanged — 1% for traders/manufacturers, 5% for restaurants, 6% for specified service providers.

Need a Rate Review?

If your product mix spans the reclassified categories, a one-time rate mapping review protects you from Section 122 penalties and blocked credits. We do this as a fixed-scope engagement — get in touch.