GST 2.0 Explained: What the New Two-Slab System Means for E-commerce Sellers
Your product was taxed at 12% last month. The same product is now taxed at either 5% or 18% — and if you haven't updated your invoices and GSTR-1 since September 22, 2025, you've either been overcharging customers or underpaying the government. Neither is a comfortable place to be when a GST notice lands.
India's biggest indirect tax reform since 2017 took effect quietly. Most marketplace seller guides haven't caught up yet. This one has.
The Four-Slab Mess India Finally Killed
The original GST structure — 0%, 5%, 12%, 18%, and 28% — was a political compromise, not a tax system. The 12% slab in particular became a dumping ground for everything that couldn't be clearly argued into 5% (essentials) or 18% (standard goods).
This created two real problems for sellers. First, classification disputes became routine. The same branded snack food could be classified at 5%, 12%, or 18% depending on your CA and how they read the HSN code. Second, ITC chains broke constantly. If you sourced raw materials and services at 18% but sold your final product at 12%, you accumulated input tax credit you couldn't fully offset — cash locked inside the portal, funding nothing.
The GST Council had been discussing rationalisation since 2021. On September 22, 2025, the 12% slab was effectively abolished.
What GST 2.0 Actually Changes
The 12% bracket is gone. Items that sat there have either moved down to 5% or up to 18%. The new primary structure:
| GST Rate | What It Covers |
|---|---|
| 0% | Unprocessed food, essential healthcare, unbranded staples — unchanged |
| 5% | Essential processed goods, basic apparel under ₹1,000, agarbattis |
| 18% | Standard manufactured goods, most services, electronics accessories |
| 28% | Premium durables — large ACs, luxury vehicles |
| 40% | Sin goods — tobacco, pan masala, aerated drinks (new slab) |
For e-commerce sellers specifically, here's where the moves that matter most happened:
From 12% → dropped to 5%:
- Packaged food items: namkeens, roasted snacks, branded cereals
- Basic readymade garments and textile accessories below ₹1,000
- Candles, diyas, agarbattis
From 12% → moved up to 18%:
- Packaged processed dairy (flavoured milk, sealed paneer)
- Stationery and office supplies above a threshold
- Mobile accessories and cables
- Trade-edition printed books
From 28% → dropped to 18%:
- Washing machines (front-load, above 10kg)
- Air conditioners in specific capacity ranges
- Premium footwear above ₹15,000
Take Arjun, who sells premium leather wallets on Amazon. His category sat at 12% for years. After September 22, it shifted to 18%. Every sale he made in late September without updating his listing meant he absorbed 6% extra out of his own margin — ₹30 per wallet on a ₹500 selling price, invisible until his CA flagged it in December.
You need to know which bucket your products landed in. The complete GST guide for e-commerce sellers has the updated HSN lookup to check your specific category.
The ITC Impact Nobody's Talking About
Here's what most sellers miss in the noise around rate changes: GST 2.0 can improve your ITC position, depending on what you buy and sell.
If your product moved from 12% to 18%, your output tax liability just increased — but so did your ability to absorb the 18% ITC you've been paying on logistics, packaging, and marketplace fees all along. That excess credit you were carrying? It now has somewhere to go. Your net GST cash outflow can actually fall even though the headline rate went up.
The reverse is equally important. If your product moved from 12% to 5%, your output liability dropped — but all your input costs (Shiprocket, packaging, Amazon fees, design services) are still taxed at 18%. You'll accumulate ITC faster than you can use it. Don't let it sit. ITC refund applications can take 60–90 days to process, so filing monthly matters more than it used to.
Priya runs a ₹12L/month candle and home décor brand on Flipkart and her own D2C store. Her products dropped from 12% to 5% under GST 2.0. Her CA estimated ₹18,000 in accumulated excess ITC by December 2025 — money she could have had in her current account but hadn't applied for. This is a common situation right now, not an edge case.
Not sure how your new rate changes your monthly liability? Run through your current filing position on the GST return filing page.
What You Need to Do This Week
Five things. In this order.
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Audit your HSN codes. Pull your GSTR-1 from August 2025 and compare the tax rate column against the GST 2.0 rate schedule. Any product that changed slabs needs a corrected entry from September 22 onwards — not from your next filing date.
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Update your marketplace listings. Amazon, Flipkart, and Meesho auto-calculate GST based on the rate you declared for your product. A wrong declared rate means wrong buyer invoices — and buyers who can't claim ITC on their purchases have every right to dispute the transaction.
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Reconcile Q3 FY 2025-26 ITC. Log in to the GST portal, open GSTR-2B for October–December 2025, and reconcile your ITC claims against your new output liability. If you're in an ITC surplus, start the refund process now.
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Handle the September 22 split. The effective date creates a split-month problem. Invoices raised before the 22nd follow old rates. Invoices from the 22nd onward follow new rates. If you bulk-raised late-September invoices, check the cut-off manually.
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Reprice if the numbers changed. A product that dropped to 5% gives you a margin improvement you can either pass to the customer (lower price, competitive edge) or hold (higher net margin). A product that moved to 18% needs a price review. On a ₹800 product, that's an ₹48 per-unit swing — material at any volume.
If you're not yet GST-registered or need to update your registration after a category change, start at the GST registration page.
The sellers who fix their HSN codes and reconcile their ITC this month will spend a weekend on it. The sellers who wait will spend next quarter explaining a mismatch between their GSTR-1 and their buyer's GSTR-2B. GST 2.0 simplified the rate structure. Your compliance overhead is lower now — but only if your filings actually reflect the new rates.