The Group of Ministers (GoM) on GST has approved a major overhaul of India’s tax structure, paving the way for a simplified two-slab system. The proposal, cleared after extensive deliberations, replaces the existing 12% and 28% GST rates with a dual structure of 5% and 18%. The plan is set to be tabled before the GST Council in September for final approval.
Introduction of 40% GST for Sin and Luxury Goods
A major highlight of the reform is the creation of a 40% GST slab for sin and luxury goods. This move targets products already facing steep duties, aiming to simplify tax compliance while retaining revenue from high-margin items.
Categories and Proposed Taxation
| Category | Items | GST Rate (2025) | Compensation Cess |
|---|---|---|---|
| Tobacco & Tobacco products | Cigarettes, cigars, gutka, chewing tobacco, hookah, nicotine substitutes | 40% | Up to 96% |
| Sugar-sweetened Beverages | Carbonated & caffeinated drinks | 40% | 12% |
| Gambling/Betting | Lottery tickets, casinos, online gaming | 40% | Variable |
| Vehicles | High-end luxury cars, SUVs above 1500cc or 4m length | 40% | 22% |
| Processed Foods | Items high in sugar, salt, or trans fats (fast food, junk food) | 40% | Variable |
Alcohol Remains Outside GST
Alcohol continues to be taxed via state excise duties due to Article 366(12A) of the Constitution. This leads to significant price variations across states.
Impact on Businesses and Consumers
The new 40% slab simplifies taxation for companies operating in FMCG, automobile, and entertainment sectors, while allowing states to levy additional charges if needed. Businesses will need to review pricing, supply chain, and compliance processes ahead of GST 2.0 implementation.
Strategic Implications
By consolidating sin and luxury goods under a single high-tax slab, the government aims to ensure revenue stability while maintaining regulatory oversight over products with social or health implications.
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