"Sin Goods" under New 40% GST Slab as Recommended by GST Council
Tobacco-related goods will continue to exist under the 28% plus compensation cess regime until cess loan obligations are fully discharged
The 56th meeting of the Goods and Services Tax (GST) Council was held on 3rd September 2025 at Sushma Swaraj Bhavan in New Delhi under the chairpersonship of Union Finance Minister Nirmala Sitharaman.
The latest council meeting introduced a major structural change in India’s indirect tax regime by recommending a new 40% GST slab. The highest slab rate shall only be applicable to a defined category of what were described in the Council briefing as “sin and super luxury goods,” distinct from the regular two-slab framework of 5% and 18% that now covers most other items.
According to the Council’s recommendations and the Finance Minister’s detailed press briefing, the 40% rate has been reserved for tobacco and related products, sugary and caffeinated drinks and luxury vehicles and crafts for personal use.
Tobacco products such as pan masala, gutkha, cigarettes, chewing tobacco such as zarda and scented variants, unmanufactured tobacco, bidis, as well as other manufactured tobacco substitutes and products containing tobacco or nicotine substitutes intended for inhalation without combustion.
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Sugary and caffeinated beverages are also grouped into this category. Aerated waters containing added sugar or flavouring, caffeinated drinks, carbonated beverages of fruit drink, carbonated beverages with fruit juice, and other non-alcoholic beverages not otherwise specified will now be subject to 40% GST.
The luxury transport segment has also been brought under the new ceiling rate. Mid-size and large cars, motorcycles with engine capacity exceeding 350cc, aircraft including helicopters and aeroplanes for personal use, yachts and other vessels for pleasure or sports are all included in the list.
Explaining the rationale during the press conference, Finance Minister Sitharaman stated that almost all goods would now fall under either 5% or 18%, but that one special rate would remain for items considered either sin goods or super luxury. “That special rate of 40% has also been proposed and it’s cleared. That will apply only to pan masala, cigarettes, gutka and other tobacco products such as chewing tobacco, zarda, unmanufactured tobacco and beedi.”
The finance minister also stated that aerated waters, caffeinated beverages, mid-size and large cars, motorcycles of engine capacity exceeding 350cc, aircrafts, yachts and other vessels for pleasure or sports shall all be categorized under the 40% slab.
The Council clarified that while most rate changes come into effect from 22nd September 2025, tobacco-related goods will continue under the existing 28% plus compensation cess regime until cess loan obligations are fully discharged, following which they shall transition into the 40% slab, ensuring continuity in cess collections until the debt burden is cleared.
The creation of a 40% slab marks a significant jump in the GST regime - marking high-risk and luxury consumption categories, but relief comes in the form of a simplified two-rate policy. How will all this pan out? We wait.
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