GST 2.0 takes effect: two main rates of 5% and 18%, special 40% de-merit rate
The next-generation GST rate changes recommended by the 56th GST Council took effect on 22 September 2025, replacing the four-tier structure with a Merit Rate of 5% and a Standard Rate of 18%.
Summary
The next-generation GST reforms took effect on 22 September 2025, the first day of Navratri. The 56th GST Council, chaired by Union Finance Minister Nirmala Sitharaman in New Delhi on 3 September 2025, recommended replacing the four-tier GST rate structure with a two-rate structure: a Merit Rate of 5% and a Standard Rate of 18%, plus a special de-merit rate of 40% for a few goods and services. All individual life and health insurance policies were exempted from GST. GST on hotel stays below ₹7,500 a day was cut from 12% to 5% (without input tax credit), and on buses with 10 or more seats from 28% to 18%. For coal, the ₹400 per tonne compensation cess was removed and the GST rate raised from 5% to 18%.
Key facts
- Effective
- 22 Sep 2025 (rates on services, per GST Council)
- Recommended by
- 56th GST Council, 3 Sep 2025, chaired by Nirmala Sitharaman
- New structure
- Merit Rate 5%, Standard Rate 18%; special de-merit rate 40%
- Insurance
- Individual life and health policies exempted
- Hotels below ₹7,500/day
- 12% to 5% (without ITC)
- Buses (10+ seats)
- 28% to 18%
- Coal
- ₹400/tonne compensation cess removed; GST 5% to 18%
Practice MCQs 5 questions
Under the GST rate structure that took effect on 22 September 2025, what are the Merit Rate and the Standard Rate?
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Correct answer: A â 5% and 18%
The 56th GST Council recommended a two-rate structure with a Merit Rate of 5% and a Standard Rate of 18%.
What special de-merit GST rate did the 56th GST Council recommend for a select few goods and services?
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Correct answer: C â 40%
Alongside the 5% and 18% rates, the Council recommended a special de-merit rate of 40% for a select few goods and services.
Under the GST reforms, the GST on hotel stays priced below ₹7,500 per day was changed to:
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Correct answer: B â 5% (without input tax credit)
GST on hotel stays below ₹7,500 a day was reduced from 12% to 5% without input tax credit.
Consider the following statements about the 56th GST Council decisions: 1. The GST rate on coal was reduced from 18% to 5%. 2. GST on buses with a seating capacity of 10 or more was raised from 18% to 28%. Which of the above is/are correct?
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Correct answer: D â Neither 1 nor 2
Both are wrong: the GST on coal was raised from 5% to 18% (with the ₹400 per tonne compensation cess removed), and GST on buses with 10+ seats was cut from 28% to 18%.
Consider the following statements about the 56th GST Council: 1. The meeting was chaired by Union Finance Minister Nirmala Sitharaman. 2. It recommended exempting all individual life and health insurance policies from GST. Which of the above is/are correct?
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Correct answer: A â Both 1 and 2
Both are correct: Nirmala Sitharaman chaired the 56th meeting, which exempted all individual life and health insurance policies from GST.