56th GST Council approves two-rate GST of 5% and 18%, with 40% de-merit rate
The 56th GST Council, chaired by Finance Minister Nirmala Sitharaman in New Delhi on 3 September 2025, approved replacing the four-tier GST structure with a two-rate system of 5% and 18%, plus a 40% de-merit rate, effective 22 September 2025.
Summary
The 56th meeting of the GST Council, chaired by Union Finance Minister Nirmala Sitharaman in New Delhi on 3 September 2025, approved next-generation GST reforms announced by the Prime Minister from the Red Fort on 15 August 2025. The Council replaced the four-tier rate structure with a two-rate 'Simple Tax' of a standard rate of 18% and a merit rate of 5%, with a special de-merit rate of 40% for a select few goods and services. All individual life and health insurance policies were exempted from GST. Small cars, motorcycles up to 350cc, air-conditioners, TVs and cement moved from 28% to 18%; ultra-high temperature (UHT) milk, paneer and Indian breads moved to nil; and tractors and many food and household items moved to 5%. Inverted duty structures were corrected, including cutting GST on manmade fibre from 18% to 5% and manmade yarn from 12% to 5%. The new rates on services and on all goods except pan masala, gutkha, cigarettes and other tobacco products take effect from 22 September 2025. The Council also recommended operationalising the GST Appellate Tribunal (GSTAT) to accept appeals before the end of September and begin hearings before the end of December 2025.
Key facts
- Meeting
- 56th GST Council, New Delhi, 3 Sep 2025; chaired by Nirmala Sitharaman
- New structure
- Standard 18%, merit 5%; special de-merit 40%
- Insurance
- All individual life and health insurance policies exempted
- 28% to 18%
- Small cars, motorcycles up to 350cc, ACs, TVs, cement, buses, trucks
- Effective
- 22 Sep 2025 (services and goods except pan masala, gutkha, cigarettes, tobacco)
- GSTAT
- Appeals before end-Sep; hearings before end-Dec 2025
Practice MCQs 5 questions
Under the two-rate GST structure approved by the 56th GST Council, what are the standard rate and the merit rate?
Show answer
Correct answer: B — 18% and 5%
The Council rationalised the four-tier structure into a two-rate 'Simple Tax' with a standard rate of 18% and a merit rate of 5%.
What special de-merit rate did the 56th GST Council approve for a select few goods and services?
Show answer
Correct answer: D — 40%
Alongside the 18% and 5% rates, the Council approved a special de-merit rate of 40% for a select few goods and services.
From which date did the GST rate changes on services recommended by the 56th GST Council take effect?
Show answer
Correct answer: A — 22 September 2025
The changes in GST rates on services, and on all goods except pan masala, gutkha, cigarettes and other tobacco products, were to be implemented from 22 September 2025.
Consider the following statements about the decisions of the 56th GST Council: 1. All individual life and health insurance policies were exempted from GST. 2. GST on small cars and motorcycles of up to 350cc was reduced from 28% to 18%. Which of the above is/are correct?
Show answer
Correct answer: C — Both 1 and 2
Both are correct: the Council exempted all individual life insurance (term, ULIP, endowment) and individual health insurance policies, and cut GST on small cars and motorcycles up to 350cc from 28% to 18%.
To correct the inverted duty structure in the manmade textile sector, the 56th GST Council reduced GST on manmade fibre from 18% to:
Show answer
Correct answer: B — 5%
The Council corrected the long-pending inverted duty structure by reducing GST on manmade fibre from 18% to 5% and on manmade yarn from 12% to 5%.