The Goods and Services Tax (GST) Council has approved a 40 per cent tax rate for sin and luxury goods, increasing it from the current 28 per cent, effective from September 22, 2025. The GST 2.0 reform reduced taxes primarily to two rates: 5 per cent and 18 per cent.
Goods that used to attract 28 per cent if they applied to harmful or luxury items such as tobacco, sugary drinks, and high-end vehicles were moved up to a 40 per cent rate slab.
Tobacco products, such as cigarettes, cigars, cheroots, cigarillos, gutkha, chewing tobacco (like zarda), unmanufactured tobacco, bidi, scented tobacco and pan masala will attract 40 per cent taxes. Luxury cars with engines over 1200 cc for petrol and 1500 cc for diesel, along with sugary, flavoured and carbonated beverages, will be subject to a new 40 per cent tax slab.
Sin taxes are excise duties on harmful or socially costly goods, levied to discourage usage while generating additional revenue for public welfare.
Tobacco products will, however, stay at 28 per cent plus the cess taxation norm until Compensation Cess loans are paid off, after which they will migrate to 40 per cent slabs, the government announced.
Alcohol remains outside GST’s ambit and continues to be taxed separately by states through excise duties.
ITC Ltd, which earns 80 per cent of its profits from cigarettes, faces risks from the tax hike but may benefit from reduced uncertainty regarding regulatory changes, according to analysts. Further, while the slab is being raised, the overall tax burden on tobacco will reportedly stay unchanged at 88 per cent, combining GST and cess.
The prices of consumer goods are expected to come down due to the lower taxes, leading to an increase in demand and spurring growth in the economy.
