On 3 September 2025, the 56th GST Council approved the biggest change to GST rates since 2017. From 22 September 2025, the four main slabs (5%, 12%, 18% and 28%) were replaced by a simpler structure. For retailers, it meant re-checking the tax rate of almost every item on the shelf. More than a year later, wrong item rates are still a common source of GST mismatches. This guide explains what changed and what to check.
What changed in GST 2.0
- 5% merit rate for most essential and common-use goods.
- 18% standard rate for most other goods and services.
- 40% special rate for a small list of luxury and sin goods (for example aerated sugary drinks, large cars, motorcycles above 350 cc, yachts and personal aircraft).
- Nil for several food items, educational supplies, lifesaving drugs and individual life and health insurance.
- Pan masala, gutkha, cigarettes, chewing tobacco and bidi continue at their earlier GST rate plus compensation cess until a date the government will notify.
Special rates such as 3% on gold and silver and 0.25% on rough diamonds were not part of this change.
Common retail items: old vs new rates
The table below summarises categories that matter to kirana, general, pharmacy, garment, electronics and hardware retailers. It is a summary; always check the exact HSN code in the notification.
| Items | Before 22 Sep 2025 | From 22 Sep 2025 |
|---|---|---|
| Toilet soap, shampoo, hair oil, toothpaste, toothbrushes, shaving cream | 18% | 5% |
| Butter, ghee, cheese, condensed milk, dry fruits | 12% | 5% |
| Namkeen, bhujia, sauces, pasta, jams, fruit juices | 12% | 5% |
| Biscuits, cakes, chocolates, cornflakes, ice cream, coffee and tea extracts | 18% | 5% |
| UHT milk, pre-packaged and labelled paneer/chena, roti, chapati, paratha | 5% / 18% | Nil |
| Exercise books and notebooks, pencils, sharpeners, erasers, maps | 5% / 12% | Nil |
| Tableware and kitchenware, utensils, umbrellas, bicycles, non-electronic toys, sports goods | 12% | 5% |
| Most drugs and medicines, glucometers, diagnostic kits, spectacles | 12% | 5% |
| Apparel and made-up textiles above ₹2,500 per piece | 12% | 18% |
| Apparel up to ₹2,500 per piece; footwear up to ₹2,500 per pair | 5% (threshold was ₹1,000) | 5% |
| Air conditioners, all TVs, monitors, projectors, dishwashers | 28% | 18% |
| Cement; small cars; motorcycles up to 350 cc; auto parts | 28% | 18% |
| Aerated and sugar-sweetened beverages | 28% | 40% |
| Other non-alcoholic beverages (as notified) | 18% | 40% |
Use our GST calculator to check prices at the new rates.
What retailers must update
1. Your item master
Go through every item in your billing software and confirm the HSN code and GST rate. Start with your top 100 sellers, then the rest. Watch out for items where the rate depends on value, like apparel and footwear (₹2,500 threshold per piece or pair).
2. Prices and price tags
Where the rate fell, the government asked businesses to pass the benefit on to customers. Revise selling prices for GST-inclusive items, and follow the Legal Metrology guidance for revised MRP on pre-packaged goods.
3. Invoices issued around the change date
For transactions that span a rate change, Section 14 of the CGST Act decides the rate using the dates of supply, invoice and payment (broadly, two of the three events decide it). If you have such cases, check them with your CA.
4. Input tax credit on stock
Where an item's rate simply fell, the credit you already took on purchases generally remains. If an item you sell became nil-rated or exempt, input tax credit on related stock and inputs may need to be reversed. Discuss this with your CA.
5. Composition dealers
If you are under the composition scheme, your tax rate on turnover doesn't change, but your purchase prices will, and your buyers' prices may need revising.
Quick checklist
- List your top 100 items and confirm their HSN and new GST rate.
- Update the rates in your billing software, then the remaining items.
- Revise shelf prices for items whose rate changed.
- Check value-based items (apparel, footwear) bill at the right rate after discounts.
- Review a sample of invoices to confirm the new rates are applied.
- Reconcile your GSTR-1 for the period with your sales register.
How VelBooks helps
In VelBooks, the GST rate sits on each item, so you update a rate once and every new invoice uses it. Sales data then flows into GSTR filing and return management, reducing mismatches between your bills and your returns.
Sources
This article is general information, not legal or tax advice. Rules change; check the official sources above or consult your tax adviser.