What are GST rates on services?
GST (Goods and Services Tax) on services is a single‑stage tax levied on the supply of services across India. The GST Council, in its 56th meeting (3‑4 Sept 2025), finalized the following slabs effective from 22 Sept 2025:
- 5 % – basic services and essential supplies.
- 18 % – standard services.
- 40 % – luxury or sin services (e.g., gambling, tobacco‑related services).
- 2 Slab Structure : GST Rates – Services
- Categorization Of GST Rates For Services Under The 4 Tier Model
- GST rate schedule for services
- GST rate on works contract services
- GST rate on consultancy services
- GST rate on professional services
- GST rate on courier services
- GST rate for professional services
- GST rate for IT services
- GST on loans and advances
2 Slab Structure: GST Rates – Services
Confused about the latest GST rates on services? Here's a simplified guide to help you navigate the changes.
Good news for MSMEs, small business owners, new entrepreneurs, and everyday consumers alike! The GST rates for services have been restructured from the earlier 4-tier system to a simpler 2-slab format. Following the 56th GST Council meeting held on 3rd and 4th September 2025, the revised GST framework will come into effect from 22nd September 2025.
Under the new structure, services will be taxed at 5% and 18% with a special 40% tax for sin goods and services(luxury items), offering significant benefits to consumers. The updated framework also brings improved ease of doing business—registration and return filing processes have been simplified, refunds are being processed faster, and compliance costs have been reduced. These changes are set to ease the regulatory load on businesses, particularly MSMEs and startups.
With these reforms, ranging from healthcare and education services to everyday necessities, the government has effectively rolled out a major Diwali gift for Indian consumers and businesses alike.
Categorization Of GST Rates For Services Under The 3 Tier Model
The Goods and Services Tax council has passed the rate slabs at NIL, 5%, 18%, 40%. Some of the services categorized under different slabs are mentioned below:
Tier – I (5% Tax Slab):
- Job work services (subject to input tax credit)
- Food delivery services (e.g., Zomato, Swiggy)
- Supply of Passenger transport by any motor vehicle where fuel cost is included
- Supply of transport of goods in containers by rail by any person other than Indian
- Supply of transportation of natural gas, petroleum crude, motor spirit, high speed diesel or ATF through pipeline
- Supply of Multimodal transport of goods within India
- Supply of Renting of any motor vehicle (with operator) designed to carry passengers where the cost of fuel is included in consideration
- Supply of Renting of goods carriage (with operator) where fuel cost is included in consideration
insurance of “goods carriage” - Supply of services by way of job work in relation to umbrella
- Supply of job work services or any treatment or process in
- Supply of job work in relation to bricks which attract GST at the rate of 5%
- Supply of job-work services in relation goods falling under Chapter 30 in the First Schedule to the Customs Tariff
- Supply of job-work services in relation to Hides, skins and leather
- Services by way of treatment of effluents by a Common Effluent Treatment Plant
- Services by way of admission to exhibition of cinematograph films where price of admission ticket is one hundred rupees or less.
- Beauty and physical well-being services
Tier – II (18% Tax Slab):
- Composite supply of works contract services involving predominantly earth work (that is constituting more than 75 percent of the value of the works contract) provided to Government
Composite supply of works contract provided by a sub- contractor to the main contractor providing services at (i) above to Government - Composite supply of works contract and associated services, in respect of offshore works contract relating to oil and gas exploration and production in offshore area
- Supply of Air transport of passengers in other than economy class
- Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both
- Support services to exploration, mining or drilling of petroleum crude or natural gas or both.
Tier - III Special "Sin" tax (40% Tax Slab):
- Luxury and sin services (e.g., premium event tickets, high-end entertainment)
- Entertainment events-amusement facility, water parks, films, theme parks, joy rides, merry-go-round, race course, go-carting, casinos, ballet, sporting events like IPL
- Race club services
- Gambling
How to Determine the Applicable GST Slab for Your Service
- Identify the exact nature of the service you provide.
- Refer to the GST Council’s 2‑slab schedule (5 % or 18 %).
- If the service falls under luxury or sin categories, apply the 40 % rate.
- Check Input Tax Credit (ITC) eligibility – full ITC is available for 5 % and 18 % services; 40 % services have restricted ITC.
Practical Examples
| Service Category | Typical Example | GST Slab |
|---|---|---|
| IT Consulting | Software development, cloud services | 18 % |
| Legal Advisory | Corporate law, litigation support | 18 % |
| Food Delivery | Online restaurant orders | 5 % |
| Luxury Hotel Suite | 5‑star accommodation with premium amenities | 40 % |
| Job‑work on Leather | Processing hides for export | 5 % |
GST rate schedule for services
GST rate on works contract services: First of all one needs to understand whether works contract is a service or not. In GST, composite supply of works contract has been classified as a service. Accordingly, the rate of GST on services, in this case, would be as follows:
Under the revised GST framework, works contract services are generally taxed at 18%, irrespective of the value of goods supplied. This includes services related to construction, civil works, and infrastructure projects. Notably, the earlier distinction between contracts with less than 25% goods value (previously taxed at 12%) and those with more than 25% goods value (previously taxed at 18%) has been eliminated. All such contracts now uniformly attract an 18% GST rate.
However, certain projects may still qualify for concessional rates:
- Affordable Housing Projects: Construction services for affordable housing projects (initiated on or after April 1, 2019) are taxed at a reduced rate of 1%, without the benefit of Input Tax Credit (ITC).
- Government and Local Authority Contracts: Works contracts executed for government bodies or local authorities may be eligible for concessional rates, subject to specific conditions and notifications.
GST rate on consultancy services: Consultancy services, covering sectors such as healthcare, finance, and investments, are now taxed at a concessional rate of 5% under GST without the benefit of input tax credit (ITC). Previously, these services were subject to an 18% GST with ITC. This revision is aimed at enhancing affordability and accessibility for consumers.
GST rate on professional services:
| Nature of Service | GST rates on services |
| Services provided by legal professionals i.e. advocates – [Service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority.] | 18% Slab (Remain same) |
| Services provided by chartered accountants, company secretaries and cost accountants [Services in nature of accounting, auditing, bookkeeping, tax return preparation and filing, consultancy and representational services.] | |
| Services provided by doctors and dentists [Services for appearance enhancement i.e. hair transplant, cosmetic and plastic surgeries are liable to be taxed and only these services are included and all other services provided by doctors and dentist are covered under health care services and are exempt from GST levy] | |
| Services provided by architects and interior decorators/ designers [ Services of nature Interior decoration/ design service] | |
| Services provided engineers | |
| Teachers [Profession includes vocation. So any services provided by private teachers/ tutors who conduct coaching classes or run coaching centers are covered under professional services and the services they render to students can be termed as education services liable to be taxed] | |
| Designers (fashion, industrial and specialty) | |
| Film artists |
GST rate on courier services: Courier services include transportation, collection and delivery services. This includes letters, parcels etc. movement form one or model of transportation.
However, GST on Postal services is excluded. GST on courier services is applicable as it falls under the definition of "Supply". The GST rate applicable to courier services is 18%.
GST rate for educational services: Though blindly any services provided by an educational institution is exempted from levy of taxes, there are certain services which when provided or consumed by educational institutions are liable to be taxed.
Below is the GST rate for educational services which are taxable under GST :
| Nature of Service | GST rates on services |
| Training services provided by commercial coaching entities | 18% Slab(Remain same) |
| Educational events organised by a foreign-based entity in India and the service recipient being commerce, industry or any other business or profession. |
GST rates for IT services in India 2025
| Nature of Service | GST rates on services |
Information Technology Services :
|
18% Slab (Remain same) |
Internet Telecommunications Services :
|
|
Maintenance, Repair and Installation Services :
|
|
Other types of IT services :
|
GST on Loans and Advances
Loans and advances are not subject to GST. However, processing fees and other charges levied by financial institutions are taxable at 18%. This change aligns with the previous Service Tax regime, where such services were also taxed at 18%
Mentioned below are the important loans and their GST rates:
(a) Personal Loan- 18%
(b) Home Loans- 18%
(c) Car Loan– 18%
Impact on Pricing & Compliance
Businesses must update their invoicing software to reflect the correct slab, recalculate GST liability, and adjust pricing where necessary. The new structure reduces compliance burden for MSMEs by limiting the number of slabs they need to track.
Input Tax Credit (ITC) Considerations
ITC is fully available for services taxed at 5 % and 18 %. For the 40 % luxury/sin slab, ITC is either restricted or disallowed as per the GST Act. Ensure your accounting system flags 40 % services to avoid inadvertent ITC claims.
Transition from the Old 4‑Tier System
Services previously taxed at 12 % or 28 % have been migrated to the new 5 % or 18 % slabs based on the nature of the service. Existing invoices issued before 22 Sept 2025 remain valid; however, all future invoices must use the new rates.
Common Mistakes & Penalties
- Applying the wrong slab – can attract a penalty of up to 10 % of the tax amount.
- Claiming ITC on 40 % services – may lead to disallowance and interest.
- Not updating ERP/invoicing software – results in filing errors and delayed refunds.
Conclusion
The 2025 overhaul of GST rates on services simplifies the tax landscape by consolidating rates into 5 % and 18 % slabs, with a targeted 40 % rate for luxury or sin services. By understanding which slab applies to your offering, updating your invoicing system, and correctly handling Input Tax Credit, you can ensure compliance while benefiting from reduced administrative overhead.
FAQs
1. What are the latest GST slabs for services in 2025?
The new GST structure has simplified service tax rates into two primary slabs—5% and 18%—along with a special 40% slab for luxury and sin services.
2. From when are the new GST rates for services applicable?
The revised GST rates will be effective from 22nd September 2025, as per the notification issued after the 56th GST Council meeting.
3. Which services fall under the 5% GST slab?
Services such as food delivery, passenger transport, renting of motor vehicles (with fuel cost included), certain job work services, and low-ticket cinema admissions fall under the 5% GST slab.
4. Which services are taxed at 18% under GST?
Most professional services like IT services, legal, accounting, consultancy, education training, and luxury travel (other than economy class) are taxed at 18%.
5. What is the GST rate on courier and postal services?
Postal services are exempt from GST. However, courier services fall under the supply category and are taxed at 18%.
6. Are healthcare and education services exempt from GST?
Yes, most healthcare and education services are exempt. However, certain services like cosmetic surgery, foreign education events, and commercial coaching/training are taxable.
7. What is the GST rate on consultancy and professional services?
Consultancy services (healthcare, finance, investment) are now taxed at 5% without ITC, while legal, accounting, and engineering services continue to attract 18% GST.
8. Are loans and advances subject to GST?
Loan repayments are not subject to GST. However, processing fees and additional charges by banks/financial institutions are taxed at 18%.
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