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Under the new plan, the Centre has proposed a separate 40% GST slab for demerit and ultra-luxury items; Check list
GST Reforms 2.0
The Modi government’s blueprint for “next-generation GST reforms”, first announced by Prime Minister Narendra Modi in his Independence Day 2025 speech, is moving forward.
After prolonged deliberations, the Group of Ministers (GoM) on GST rate rationalisation has cleared a major overhaul of the indirect tax regime, paving the way for a simplified two-slab structure.
Bihar Deputy Chief Minister Samrat Choudhary, who chaired the GoM, said the panel has agreed to scrap the 12% and 28% slabs, replacing them with just 5% and 18% rates. The proposal will be placed before the GST Council in September for final approval.
At the same time, the government is reworking the framework for ‘sin’ and luxury goods, which already attract heavy duties through a mix of GST, cess, and additional levies. For example, chewing tobacco faces a 160% cess, gutka 204%, and cigarettes are taxed through GST, cess, and NCCD, making their effective burden far higher than standard slabs.
Under the new plan, the Centre has proposed a separate 40% GST slab for demerit and ultra-luxury items such as tobacco, pan masala, and high-end luxury cars. UP Finance Minister Suresh Kumar Khanna confirmed these categories have been earmarked for the higher rate.
So, what exactly qualifies as sin goods? Here’s a detailed look at their tax structure:
Goods Under 40% GST Slab (2025 Proposal)
| Category | Examples | Cess |
|---|---|---|
| Tobacco | Cigarettes, gutka, hookah | Up to 96% |
| Sugary Drinks | Aerated water, sodas, energy drinks | 12% |
| Gambling | Lottery, casinos, online gaming | None/Variable |
| Luxury Cars | SUVs, >1500cc, >4m length | 22% |
| Junk Foods | Fast food, high sugar/salt/fat items | None/Variable |
Note: Alcohol is outside GST (per Article 366(12A)). It’s taxed under state excise duties, leading to big price differences across states.
Can a 40% “Sin Tax” Offset GST Revenue Loss?
According to a senior government official, the additional 40% GST on sin and luxury goods will help plug potential revenue gaps. “With the cess portion being merged into GST, categories like tobacco, cigarettes, aerated drinks, and luxury vehicles are expected to significantly boost overall GST collections,” the official told Moneycontrol.
Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a…Read More
Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a… Read More
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