New Delhi | September 4, 2025

The Goods and Services Tax (GST) Council has introduced a steep 40 per cent tax rate on sin and super luxury items, marking a major shift in the country’s indirect tax framework. The decision, announced after the government’s sweeping GST reforms, targets products such as cigarettes, pan masala, aerated drinks, and high-end vehicles.

40% GST on Luxury and Sin Goods

Under the revised structure, tobacco products, cigarettes, and pan masala will now fall under the 40 per cent GST slab. Similarly, large automobiles—petrol cars above 1,200 cc, diesel cars above 1,500 cc, and vehicles longer than 4,000 mm—will also attract the higher levy. Motorcycles exceeding 350 cc, yachts, personal aircraft, and racing cars are included in the category.

The council also raised the rate on aerated drinks containing added sugar, along with caffeinated and other non-alcoholic beverages, from the earlier 28 per cent to 40 per cent.

Finance Minister Nirmala Sitharaman said the higher rates would ensure luxury consumption is taxed appropriately, while providing relief to households through lower rates on essentials.

GST Structure Simplified

The Council’s decision comes as part of a larger overhaul of the GST regime. The previous four-slab system of 5, 12, 18, and 28 per cent has been rationalised into two main rates—5 per cent and 18 per cent. The special 40 per cent slab has been carved out exclusively for high-end and demerit goods.

The new rates will take effect from September 22, except for tobacco products and cigarettes, which will continue under the higher tax structure immediately.

Relief for Consumers

While luxury goods have been taxed heavily, the government has simultaneously cut taxes on a wide range of consumer items to ease the burden on common households. Everyday essentials such as soaps, medicines, toothpaste, and small cars will now be cheaper under the restructured GST system.

Prime Minister Narendra Modi welcomed the move, calling the reforms “a landmark step that will improve lives and ensure ease of doing business, especially for small enterprises.” He said the simplification of tax slabs reflects the government’s focus on the common man while also streamlining compliance for businesses.

Global Trade Context

The timing of the reforms is significant as India continues to grapple with global trade pressures. The United States has imposed tariffs of up to 50 per cent on Indian exports, the highest levies faced by any nation. The government believes lowering domestic consumption taxes will support growth, boost spending, and strengthen resilience against international headwinds.

Outlook

Experts say the dual approach—cutting taxes for essential items while raising levies on luxury and sin goods—could improve compliance, widen the tax base, and spur consumption-led growth. With festive demand approaching, the impact of the new GST structure is expected to be felt quickly across industries.

The reforms mark the most significant change to the GST framework since its launch in 2017, balancing affordability for the masses with higher contributions from luxury consumption.