New Delhi: In its 56th meeting, the GST Council implemented major reforms in the tax structure. On August 15, 2025, Prime Minister Narendra Modi announced Next-Generation GST Reforms from the Red Fort, emphasizing that the tax system would now be simpler and more transparent. Under this new framework, most goods and services have been brought under two major slabs—5% and 18%—while certain specific goods and services have been placed under the 40% GST slab.
Purpose of the 40% GST Slab
The 40% rate has been applied only to those goods and services that fall under the category of demerit goods or sin goods. These items are generally considered harmful, addictive, or highly luxurious. The rationale behind imposing a higher tax is to discourage their consumption and at the same time increase government revenue. Earlier, these items were taxed at rates up to 28%, which has now been raised to 40% for greater impact.
What Are Sin Goods?
Sin goods are products that, when consumed excessively, are considered harmful to health and society. These typically include tobacco products, alcohol, sugary beverages, and luxury cars. Governments impose higher taxes on such goods with the dual objective of reducing consumption and utilizing the extra revenue for healthcare and social welfare schemes. In economic terms, taxing sin goods is also seen as a corrective measure to balance the social cost created by their usage.
Goods and Services Under the 40% GST Slab
According to the official list, the following items are covered under the 40% GST slab:
- Pan Masala: Earlier taxed at 28%, now at 40%.
- Gutkha and Other Tobacco Products: Includes zarda, unprocessed tobacco, and tobacco mixtures.
- Cigarettes and Cigars: Includes cheroots, cigarillos, and cigarettes.
- Other Tobacco Products and Substitutes: Manufactured tobacco, tobacco substitutes, homogenised tobacco, tobacco extracts and essences.
- Nicotine-based Inhaling Products: Products containing tobacco or nicotine substitutes designed for inhalation without combustion.
- Carbonated Beverages and Fruit Drinks: Includes carbonated beverages of fruit drink or fruit juice.
- Sugary Beverages: Aerated waters containing added sugar or other sweetening matter.
- Caffeinated Beverages: Energy drinks and other drinks containing high amounts of caffeine.
- Luxury Motor Vehicles: Cars longer than 4000 mm or with engine capacity above 1200 cc.
- Hybrid Motor Vehicles: Spark-ignition and compression-ignition hybrid vehicles exceeding 4000 mm in length or 1200 cc engine capacity.
Read also : What Will Change After GST Reforms? Check the Complete List of Cheaper and Costlier Items
Impact on Consumers
The increase in tax rate will directly affect the prices of these items. Tobacco products such as pan masala, gutkha, and cigarettes will become more expensive. Similarly, the prices of carbonated drinks, sugary beverages, and energy drinks will rise. In the automobile sector, luxury and larger hybrid vehicles will see higher price tags, potentially affecting their demand among buyers who were already price-sensitive.
Government’s Stand
The government has clarified that essential items such as milk, fruits, vegetables, grains, and life-saving medicines have either been exempted from GST or moved to lower slabs. The 40% GST slab has been reserved strictly for sin goods and demerit goods, which lie outside the category of essential needs.
Impact on Industries
- Tobacco Industry: Sales may decline due to the higher tax burden.
- Beverage Industry: Consumption of carbonated and energy drinks is expected to fall.
- Automobile Industry: Luxury and hybrid vehicle sales may decline due to price hikes, though mid-segment cars remain unaffected as they fall under the 18% slab.
The 40% GST slab applies only to specific goods and services categorized as sin or demerit goods. These primarily include tobacco products, sugary and caffeinated beverages, and luxury or high-capacity vehicles.
Reference : https://www.pib.gov.in/PressReleseDetail.aspx?PRID=2163555