GST Reforms | What are the 'sin' and luxury goods taxed under highest 40% rate?

The GST Council, chaired by Union Finance Minister Nirmala Sitharaman, have introduced various reforms on GST rates to ensure rate rationalization.

One of the most significant changes include the tax rate increase applicable for luxury and sin goods, which are subjected to the highest tax rates of now 40 per cent.

Sin and luxury goods comprise of pan masala, guthka, cigarettes, tobacco-based items, caffeinated beverages, carbonated drinks that have sweetening matter or flavour, non-alcoholic beverages, carbonated beverages with fruit juice or fruit drinks, pistols and revolvers, yachts, and helicopters. These goods will now under the 40 per cent tax slab category,

But the sin goods will only be taxed under the 40% GST rate after the compensation loans to the states are cleared, FM Nirmala Sitharaman has clarified. After that, the goods including pan masala, cigarettes, beedi, and other tobacco-based items will not be taxed under the previous slab of 28 per cent and move to the new higher 40% slab. The cess intends to increase revenue and decrease consumption of certain goods, like tobacco. The increase from 28 per cent to a higher rate is keeping in mind the health and social interests and concerns.

The Council has recommended compensation cess to be removed and merged with the GST, removing additional burden on tax slabs.

The Union Finance Minister may decide a date of transition for revised GST rates for the goods that will be taxed in the previous slab after the loans are paid.

Alcohol will continue to be taxed by states separately through excise duties, and is outside GST scopes.

Apart from this, the Council has announced a lower GST rate for various household items, basic and packaged food, vehicles, housing, and healthcare.

To make daily use goods affordable, the taxes on bicycles and their parts, toilet soaps, shampoo, hair oil, basic dental hygiene goods, and spectacle and goggles for only vision correction will be taxed at 5 per cent.

Earlier at 12 per cent, tax has been removed on 33 life-saving medicines. This move has been decided to make healthcare more affordable to the public.

In a move to make items affordable and reduce costs for households, the GST changes in structure and rates have been lauded as the biggest change for the system since its introduction in 2017.

The new rates will come into effect from September 22, 2025.