GST Rates on Goods and Services – Complete Breakdown

1. Introduction

When the Goods and Services Tax (GST) came into effect on 1st July 2017, it replaced almost 17 different taxes — including excise duty, service tax, VAT, and many others. It brought everything under one roof, making taxation simpler and more uniform across India.

But one thing still confuses many businesses and consumers — GST rates.

You must’ve noticed that some products have 5% GST, some 12%, some 18%, and luxury items even 28%. Similarly, services also fall into different tax slabs.

So, why are there multiple GST rates? How are they decided? And which items fall under each category?

Let’s break this down in simple language — with examples — to understand the GST rate structure on goods and services in India.

2. Why Multiple GST Rates?

GST was meant to be a “One Nation, One Tax” system, but India’s economy is huge and diverse. The government couldn’t tax essential goods and luxury items at the same rate.

So, to maintain fairness and affordability, the GST Council introduced a multi-tier structure with different slabs:

• Lower rates for essential goods and services (like food, transport).
• Higher rates for luxury goods or items considered non-essential.

This structure ensures that basic needs stay affordable, while luxury consumption is taxed higher.

3. Current GST Rate Slabs in India

There are five major GST slabs in India:

• 0% (Nil rate)
• 5%
• 12%
• 18%
• 28%

In addition, some special goods attract Compensation Cess (like luxury cars, tobacco, aerated drinks, etc.).

Let’s understand what comes under each category.

4. GST @ 0% (Nil Rate)

These are essential items — mostly basic food products and life-necessity items. No GST is levied on them.

Examples:

• Fresh fruits and vegetables
• Milk, curd, and buttermilk
• Eggs, honey, fish, meat
• Wheat, rice, flour (unbranded)
• Books, newspapers
• Bangles, handloom fabrics

Services under 0%:

• Healthcare services by hospitals and doctors
• Education services (schools, colleges)
• Agricultural services
• Local passenger transport (bus, metro, auto rickshaw)

Note: While these are exempt from GST, suppliers of such goods cannot claim Input Tax Credit (ITC).

5. GST @ 5%

This slab covers goods and services that are essential but not completely exempt. The idea is to keep the tax low for items of daily use.

Goods examples:

• Branded cereals, tea, coffee (not instant)
• Edible oil, sugar, spices
• Footwear below ₹1,000
• LPG for domestic use
• Packaged food products
• Life-saving medicines

Services examples:

• Air travel (economy class)
• Railways (AC class)
• Transport of goods by GTA (if opted for 5%)
• Small restaurant services (non-AC, non-alcoholic)

Impact: This rate ensures affordability while still generating government revenue.

6. GST @ 12%

This is for slightly higher-end or processed goods, and some business-related services.

Goods examples:

• Processed foods like jams, juices, pasta
• Butter, cheese, ghee
• Umbrellas, sewing machines
• Mobile phones
• Fertilizers
• Medical equipment

Services examples:

• Business class air travel
• Hotel accommodation (₹1,000–₹7,500 per night)
• Outdoor catering (non-luxury)
• Rail transportation of goods (non-agriculture)

This category balances both — not too low, not too high — making it a mid-tier slab.

7. GST @ 18%

This is the standard rate in India and covers most items and services that are neither essential nor luxury.

Goods examples:

• Computer hardware, monitors
• Refrigerators, washing machines
• Instant coffee, chocolates, pastries
• Paints, varnishes
• Processed foods and packaged snacks
• Mineral water, branded garments

Services examples:

• Telecom and internet services
• Banking and financial services
• Software development
• Professional services (CA, lawyers, consultants)
• Restaurants with AC or serving alcohol
• IT and advertising agencies

Note: Around 60% of all GST collections come from this slab, as it’s applied to most goods and services.

8. GST @ 28% (Luxury and Sin Goods)

This is the highest GST slab and is meant for luxury items or goods harmful to health.

Goods examples:

• Luxury cars, SUVs
• Air conditioners, washing machines (premium)
• Tobacco products, cigarettes
• Pan masala, gutkha
• Aerated drinks and energy beverages
• Motorcycles above 350cc
• Fireworks, betting, gambling

Services examples:

• 5-star hotel stays (above ₹7,500 per night)
• Cinema tickets above ₹1,000
• Casino, horse racing, theme park entry

Additional Cess: Items like tobacco, coal, aerated drinks, and luxury vehicles attract an extra Compensation Cess ranging from 1% to 290%, depending on the product.

9. Composition Scheme Tax Rates (Special Category)

Small taxpayers who opt for the Composition Scheme pay GST at a fixed lower rate instead of normal slabs.

They can’t charge GST separately or claim ITC, but it’s easier to comply for small businesses.

10. Exempted Goods and Services (Outside GST)

Some goods and services are completely outside GST’s scope, meaning no tax at all.

Examples:

• Alcoholic liquor for human consumption
• Electricity
• Petroleum crude, petrol, diesel, aviation turbine fuel (ATF), natural gas (until notified)
• Land and building (sale of land, completed property)
• Toll charges, court fees, and postal services

Note: These are taxed separately by States through excise duty or VAT.

11. Why GST Rates Keep Changing

The GST Council, chaired by the Union Finance Minister, meets regularly to review and adjust rates based on:

• Inflation and consumer impact
• Industry representation
• Revenue collection targets
• Changes in technology or consumption trends

Over time, the government has reduced rates on many items — for example, mobile phones were shifted from 28% to 12%, and cinema tickets under ₹100 now attract only 12% GST.

12. Example – How GST Applies in Real Life

Let’s take a simple example.

A restaurant bill (non-AC) of ₹1,000 attracts 5% GST, so:

• Total = ₹1,000 + ₹50 = ₹1,050

But a restaurant in a 5-star hotel (luxury category) might attract 18% or 28%, so:

• ₹1,000 + ₹180 = ₹1,180

The idea is simple — the more luxury or optional the service, the higher the tax rate.

13. Impact of GST Rates on Consumers

Consumers today are more aware of GST rates than ever before.

• Lower rate goods (0%–5%) → keep daily essentials affordable.
• Mid-rate goods (12%–18%) → target mass consumption sectors.
• High rate goods (28%) → control luxury demand and harmful consumption.

It’s a delicate balance between affordability and revenue generation.

14. Challenges with Multiple GST Slabs

While the slab system is logical, it’s not without challenges:

• Too many rates make classification confusing.
• Businesses sometimes face disputes over “correct GST rate” for specific products.
• Rate revisions require constant system and invoice updates.

Many experts suggest that in the future, India might move toward a two-rate system (say 8% and 18%) for simplicity.

15. Future Outlook – GST Simplification

The government has already hinted at rate rationalization — merging some slabs to simplify taxation. There are discussions in the GST Council about:

• Reducing the 28% slab scope to very few luxury items.
• Merging 12% and 18% slabs into a single mid-rate around 15%.

This would make the system easier for businesses and reduce confusion for consumers.

16. Key Takeaways

Let’s wrap it up with a quick summary:

The multi-rate GST system ensures fairness — essentials remain cheap while luxury items contribute more to revenue.

17. Final Thoughts

GST rates may seem complicated at first, but they’re actually designed to make taxation more balanced.

From fresh vegetables at 0% to luxury cars at 28%, every item is taxed according to its necessity and impact on society.

As India’s economy matures, the GST structure will continue evolving — possibly with fewer slabs and simpler rules.

For now, understanding these rate categories helps both consumers and businesses make informed decisions, avoid overpayment, and stay compliant.

Also Read: GST Composition Scheme – (Eligibility, Rates & Benefits)