The September 2025 rate change, and the two dates that catch people out

What changed

The 56th GST Council, meeting on 3 September 2025, replaced the four-tier structure with a merit rate of 5% and a standard rate of 18%, and introduced a special de-merit rate of 40% for selected luxury and sin supplies. The 12% and 28% slabs were withdrawn with effect from 22 September 2025.

40% is a de-merit rate, not a standard rate. It applies to notified supplies only. The standard rate is 18%. This matters because the two are easily conflated in a spreadsheet, and applying 40% to an ordinary supply overstates the tax by more than a factor of two.

Three things carried on unchanged, and each is a false positive waiting to happen if you forget them: 3% on precious metals, 0.25% on rough diamonds, and the special composition scheme for bricks at 6% without input tax credit and 12% with it. A 12% rate on a brick invoice dated after the rationalisation is correct.

The first date that catches people out: 22 September 2025

The changes did not apply to pan masala, gutkha, cigarettes, chewing tobacco such as zarda, unmanufactured tobacco or bidi. Those goods kept their existing rates together with compensation cess until 31 January 2026, pending discharge of the compensation cess loan and interest obligations.

So a cigarette invoice dated October 2025 at 28% is right, and a scrutiny that flags it as a withdrawn slab is wrong. This is the single most likely false positive in any rate check written from the headline announcement alone.

The second: 1 February 2026

Notification No. 19/2025-Central Tax (Rate) dated 31 December 2025 brought those goods in from 1 February 2026, at 40%, with one exception. Bidi went to 18%, not 40%. Compensation cess ceased on every good and service from the same date.

From that date Rule 31D computes the tax on notified tobacco and pan masala goods on the retail sale price, as (RSP × 40) ÷ 140, not on the transaction value. Any figure derived from the transaction value understates the tax on those goods. The additional excise duty on tobacco and the Health and National Security Cess on pan masala sit outside GST and never appear in a return.

Neither date settles the rate by itself

Section 14 governs at a rate change. It fixes the time of supply by reference to which two of the three events, supply, invoice and payment, fall on the same side of the change. A rate that looks wrong for the invoice date may well be right, and the reverse is equally possible. Anything within a few weeks of either date has to be read with Section 14 in hand rather than pressed.

What this means for a rate check

A rate being valid on a date tells you very little: classification decides whether it was the correct rate, and classification cannot be settled from a return. A rate being invalid for the date tells you a great deal, because no classification makes a withdrawn slab lawful. That asymmetry is the only sound basis for screening rates mechanically, and even then, the deferred goods, the brick scheme and Section 14 have to be carved out first, or the exceptions will outnumber the findings.