GST today: the slabs, the GST Council and how the money is shared

What are the GST rates now?

Most goods and services are taxed at either 5% or 18%, with a 40% rate for a short list of goods and NIL for some essentials. This two-rate structure was recommended by the GST Council at its 56th meeting on 3 September 2025, which described it as “a 2 rate structure with a Standard Rate of 18% and a Merit Rate of 5%”. It replaced the earlier four slabs of 5%, 12%, 18% and 28%.

Many items in the old 12% slab moved to 5% or NIL, and many in the 28% slab moved to 18%. The changes for most goods and all services took effect on 22 September 2025.

GST rate structure (as of October 2026)

• NILsome essentials, e.g. UHT milk, pre-packaged paneer, Indian breads, individual life and health insurance
• 5%merit rate, e.g. namkeens, butter, ghee, toothpaste, shampoo, bicycles, many medicines
• 18%standard rate, e.g. air-conditioners, televisions, small cars, cement
• 40%de-merit rate, e.g. pan masala, cigarettes, aerated drinks, motorcycles above 350 cc

What did the change mean for everyday items?

Many household goods moved to a lower slab. Hair oil, shampoo, toothpaste and toilet soap moved to 5%, as did bicycles and kitchenware. Namkeens, sauces, pasta, instant noodles, chocolates, coffee, butter and ghee are taxed at 5%.

Thirty-three lifesaving drugs moved from 12% to NIL, and individual life insurance policies, including term, ULIP and endowment plans, were exempted. Air-conditioners, televisions, dishwashers, small cars, motorcycles up to 350 cc and cement moved from 28% to 18%.

Some items went the other way. Motorcycles above 350 cc, aerated and caffeinated drinks and pan masala were placed in the 40% slab. Certain apparel and textiles priced above ₹2,500 a piece moved up to 18%.

What happened to tobacco and the compensation cess?

Since 1 February 2026, pan masala, cigarettes and tobacco products attract 40% GST, and the compensation cess has ended. The 56th Council kept the old rates on these goods until loan and interest obligations under the compensation cess account were paid off. At the end of December 2025 the government notified 1 February as the date from which the compensation cess would “cease to exist”, PTI reported on 1 January 2026.

From that date, tobacco products also attract an additional excise duty, and pan masala a new Health and National Security Cess, both on top of GST. Biris are taxed at 18%.

The 101st Constitution Amendment required Parliament to compensate states for revenue lost because of GST for five years. The compensation cess, levied at varied rates on top of GST, fed the compensation cess account.

Who decides GST rates?

The GST Council recommends rates and rules, and the Centre and states give effect to them through notifications and laws. The Council was created by the Constitution (101st Amendment) Act, 2016, and first met on 22 and 23 September 2016.

Its members are the Union Finance Minister, the Union Minister of State for Revenue or Finance, and one minister nominated by each state. The Revenue Secretary is its ex-officio secretary.

Most decisions are taken by consensus. When there is a vote, the Centre’s vote carries one-third of the weight and the states’ votes together carry two-thirds. A proposal passes only with at least three-fourths of the weighted votes. This means neither the Centre nor the states acting alone can carry a decision.

Is a Council decision law?

No, a recommendation becomes law only once it is notified or the GST Acts are amended. The release after the 57th meeting on 8 October 2026 says its recommendations “would be given effect through the relevant circulars/ notifications/ law amendments”. Its proposal to withdraw officers’ arrest powers, for example, requires deleting section 69 of the Central GST Act.

The 57th meeting left the slabs unchanged. It made a few item-level decisions, such as NIL GST on psyllium seeds and 5% on delivery services through e-commerce operators.

How is GST money shared between the Centre and the states?

Both the Centre and the states levy GST on sales within a state, while the Centre collects GST on inter-state trade and shares it out. Article 246A of the Constitution gives Parliament and every state legislature the power to make laws on GST. Under Article 269A, GST on inter-state supplies is “levied and collected” by the Government of India and “apportioned between the Union and the States” in a manner Parliament sets by law on the Council’s recommendation.

The Centre’s tax revenue is then shared again through the Finance Commission. The 16th Finance Commission, whose report was tabled on 1 February 2026, kept the states’ share of the divisible pool of central taxes at 41% for 2026–31, according to PRS Legislative Research. The divisible pool leaves out cesses, surcharges and the cost of collection.

How much does GST raise?

Gross GST collections were about ₹2.04 lakh crore in September 2026, up 14.7% on a year earlier. GST on imports grew 25.9% and domestic GST 10.1%, according to provisional data reported by Business Today. Net collections after refunds were ₹1.77 lakh crore.

For April to September 2026, gross collections came to ₹12.46 lakh crore, up 11.6%. The September 2025 base came just before the rate cuts took effect on 22 September 2025.

GST: key dates

1. 8 Sep 2016President assents to the 101st Constitution Amendment, creating the GST Council
2. 22–23 Sep 2016First GST Council meeting
3. 3 Sep 202556th Council recommends the 5% and 18% two-rate structure, with 40% for de-merit goods
4. 22 Sep 2025New rates take effect for services and most goods
5. 1 Feb 2026Compensation cess ends; tobacco and pan masala move to 40% GST
6. 8 Oct 202657th Council keeps slabs, recommends removing arrest powers