GST Two-Tier Rate Structure & New 40% Rate: What Changed

Auto-drafted from official sources and under review by CA Rajeev Ranjan. Verify against the original notification before you act.

What the GST Council Decided

At its 56th meeting in 2025, the GST Council recommended a significant simplification of India's GST rate structure. Instead of the current multi-slab system, the Council proposed moving to:

• A primary two-tier structure: 5% and 18%
• A special 40% rate applicable to select goods and services

The recommended effective date for this restructuring is 22 September 2025.

The 40% Rate Goes Live on IRIS IRP

On the technical side, the new 40% GST rate was implemented in the IRIS Invoice Registration Portal (IRP) production environment from 1 February 2026. This means the e-invoicing infrastructure now formally supports this rate for businesses generating IRNs (Invoice Reference Numbers) through IRIS IRP.

If your business uses IRIS IRP for e-invoicing and you supply goods or services that attract the 40% rate, your invoicing system must be updated to reflect this.

Who Is Affected

• Businesses supplying goods or services that fall under the new 40% category, you need to verify whether your product or service is covered. Refer to the official notification for the specific list.
• Taxpayers currently operating under the 12% or 28% slabs, the proposed consolidation into 5% and 18% may change your applicable rate. Verify your HSN/SAC codes against the revised rate schedule.
• Finance, accounts payable, and ERP teams, rate master tables in your accounting software or ERP need to be updated, particularly if you use IRIS IRP for e-invoicing.
• Businesses with long-term contracts, fixed-price contracts may need to be reviewed for GST rate revision clauses.

What You Should Do

1. Identify your applicable rate under the new structure by matching your HSN/SAC codes to the revised rate schedule in the official notification.
2. Update your ERP and invoicing systems to support the 40% rate if applicable, especially if you file through IRIS IRP, this was live from 1 February 2026.
3. Review contracts and purchase orders for any GST rate change impact and communicate with counterparties where needed.
4. Check transitional provisions, the official notification will clarify how pending transactions, credit notes, and advances are to be handled across the rate change date.
5. Consult your CA if you are unsure about rate classification or input tax credit implications under the restructured slabs.

Bottom Line

This is one of the more structural changes to GST since its introduction. The shift toward a cleaner two-tier system reduces complexity, but the addition of a 40% rate for select categories means businesses cannot assume a straightforward migration. Act now on system updates and rate verification, do not wait for the next filing cycle.

Source: Official notification