New GST Rates 2025: Council Clears 40 Per Cent Tax Slab For Sin and Luxury Goods in GST 2.0 Overhaul

The Goods and Services Tax (GST) Council has approved a major overhaul of India’s tax structure, slashing rates for common-use items while imposing the steepest-ever levy on sin and luxury goods. In its 56th meeting on September 3, the Council cleared the long-discussed “GST 2.0” shift to a two-slab system of 5 per cent and 18 per cent, with a separate 40 per cent bracket reserved for products deemed harmful or extravagant.

GST 'Diwali Gift'

Union Finance Minister Nirmala Sitharaman confirmed that the revised rates will take effect from September 22, calling it the biggest reform since GST’s launch in 2017. “I think it will have a very positive impact on the GDP,” she said. Prime Minister Narendra Modi had earlier described the move as a “Diwali gift.”

The 40 per cent slab will target tobacco products, sugary drinks, luxury cars, high-end motorcycles, yachts, helicopters, and online gambling. Items like shampoos, toothpaste, bicycles, and kitchenware will now fall under the reduced 5 per cent bracket, bringing relief to households and small traders.

Goods under 40 per cent GST slab:

Pan masala, gutka, cigarettes, bidi, chewing tobacco

Cigars, cheroots, cigarillos, tobacco substitutes

Sugary and caffeinated beverages, aerated waters

Luxury cars (above 1500 cc), SUVs, and motorcycles over 350 cc

Yachts, helicopters

Online gambling/gaming

Given the addictive nature of these goods, demand is expected to remain steady, leaving the exchequer better positioned to fund welfare schemes.

Prime Minister Narendra Modi had previewed the reform in his Independence Day address, calling it a “Diwali gift” for citizens. Union Home Minister Amit Shah hailed it as a “historic decision” that will ease burdens for the poor and middle class while tightening levies on the wealthy and on harmful consumption.