India GST 2.0 for Importers and Exporters: New 5%, 18% & 40% IGST Slabs and the End of Compensation Cess on Most Goods

A year after India's GST 2.0 reform took effect on 22 September 2025, many importers still calculate IGST on old slabs. This article sets out the current structure, shows how import IGST is calculated on the customs side, and explains how exporters keep zero-rated status under a Letter of Undertaking (LUT).

What changed under GST 2.0

Notification 9/2025-Central Tax (Rate) and the matching IGST notification restructured the rate schedule into:

• **5%** (merit rate) for essentials and many intermediate goods.
• **18%** (standard rate) for most manufactured goods.
• **40%** (special rate) for a short list of luxury and sin goods.
• **Nil** for specified goods.

The old 12% and 28% slabs were folded into these rates for most items. Compensation cess was removed for most goods at the same time, with tobacco products the main exception until the cess-funded loans are repaid. Always confirm your exact HSN line in our India GST rate finder, which also flags the 1 November 2026 amendments.

How import IGST is calculated

On imports, IGST is collected by Customs on the bill of entry, not by the GST portal. The base is cumulative:

1. Assessable value: CIF value converted at the CBIC exchange rate.
2. Basic Customs Duty (BCD) on the assessable value.
3. Social Welfare Surcharge (SWS), normally 10% of BCD.
4. IGST on (assessable value + BCD + SWS).

IGST paid on import is available as input tax credit to a registered importer, so for most businesses it is a cash flow cost rather than a final cost. BCD and SWS are not creditable.

Worked example: an 18% item

Machinery parts imported with CIF value USD 20,000, exchange rate INR 84.00, BCD 7.5%, SWS 10% of BCD, IGST 18%.

1. Assessable value: 20,000 x 84 = INR 16,80,000.
2. BCD: 16,80,000 x 7.5% = INR 1,26,000.
3. SWS: 1,26,000 x 10% = INR 12,600.
4. IGST base: 16,80,000 + 1,26,000 + 12,600 = INR 18,18,600.
5. IGST: 18,18,600 x 18% = INR 3,27,348.
6. Total payable at customs: INR 4,65,948.

If the same goods had moved from the old 28% slab to 18%, IGST on this entry would fall by INR 1,81,860, which shows why reclassifying against the new schedule matters.

Worked example: a 5% item

Same values, IGST 5%: IGST base INR 18,18,600 x 5% = INR 90,930. Total at customs: INR 2,29,530.

Exports: keeping zero rating under LUT

Exports are zero-rated supplies under Section 16 of the IGST Act. An exporter has two routes:

• **Export under LUT (Form GST RFD-11):** no IGST is charged on the export invoice and the exporter claims a refund of accumulated input tax credit.
• **Export on payment of IGST:** IGST is paid and refunded automatically once the shipping bill and GSTR-1 match.

The LUT must be filed for each financial year before the first export of that year. Without a valid LUT, exports must go on payment of IGST or the exporter risks a demand with interest.

Do not forget export incentives

GST refunds sit alongside, not instead of, customs incentives. Check duty drawback and RoDTEP on the same shipment with our India drawback calculator.

Checklist for importers and exporters

• Re-map every recurring HSN code to the GST 2.0 rate.
• Update ERP tax codes so purchase invoices and bills of entry match.
• Confirm compensation cess no longer applies, except tobacco items.
• File the LUT at the start of each financial year.
• Reconcile shipping bills with GSTR-1 monthly so IGST refunds are not held.

This article is a practical summary. Rates can change by notification, so verify against CBIC notifications or with your customs broker before you file.