GST 2.0: Finance minister Nirmala Sitharaman announces new slab of 40% for sin, luxury goods

The GST Council on Wednesday (September 3) approved a new 40% tax slab for luxury and sin goods, introducing a major shift in India’s indirect tax framework. While the rollout date for this highest slab will be notified later, the simplified two-rate system of 5% and 18% will be enforced starting September 22. The 40% slab is meant to eventually replace the current cess mechanism and will apply to products such as paan masala, cigarettes, gutka, chewing tobacco, zarda, unmanufactured tobacco, and bidis. It will also cover premium items like large cars and high-end consumer goods.

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Finance Minister Nirmala Sitharaman, while announcing sweeping rate cuts, said the new structure is aimed at reducing the tax load on ordinary households. “The 40% rate is confined to tobacco-based products and certain high-sugar and carbonated beverages, including caffeinated and fruit-based fizzy drinks. Everything else will fit into the two main slabs of 5% and 18%,” she explained.

She clarified that the existing 28% slab along with the compensation cess will remain until repayment of pending GST loans, after which those categories will be subsumed into the new 40% band. With this rationalisation, the GST system now rests on three broad slabs—5%, 18%, and 40%, effectively scrapping the earlier 12% and 28% categories. Essential items such as food and textiles will be taxed at a uniform 5%, while consumer durables including refrigerators, large-screen televisions, and air-conditioners will be brought under the 18% bracket, reducing their overall tax burden.

Meanwhile, the Union Finance Minister Nirmala Sitharaman also lashed out at the Opposition. She said, “Congress could not implement it during its tenure. It was implemented under PM Modi's leadership and reforms are also being done. Congress should make up its mind whether to support him or not. People will not be misled by you today. People will give you an answer.”