The Goods and Services Tax (GST) Council has recently approved a significant overhaul of the GST structure, set to take effect on September 22, 2025. A key feature of this revamp is the introduction of a new 40% tax slab, primarily targeting what are commonly referred to as "sin" goods and luxury items. This move aims to discourage the consumption of goods harmful to public health and generate additional revenue for public welfare.

What are 'Sin' Goods?

"Sin" goods are products considered detrimental to society or individual health. These items often face higher taxes to curb their consumption and offset the negative impacts associated with them. Under the GST law, these goods attract the highest tax rates.

The '40% Club': A List of Items

The new 40% GST slab will apply to a range of products, including:

• Tobacco Products: This category includes a wide array of items such as pan masala, gutkha, cigarettes, bidis, chewing tobacco (like zarda), and unmanufactured or scented tobacco. However, it's important to note that tobacco products will continue to be taxed at the existing rate of 28% plus compensation cess until all pending loan and interest payment obligations are cleared.
• Aerated and Sugary Beverages: All carbonated drinks, aerated waters with added sugar, caffeinated beverages, and other non-alcoholic beverages fall under this category.
• Luxury Vehicles: This includes high-end cars and SUVs, as well as motorcycles with engine capacities exceeding 350cc.
• Personal Transportation: Certain luxury or selected transport-related goods and services have moved from the 28% to 40% tax bracket. This includes helicopters for personal use, yachts, and other vehicles for pleasure and sports. Specific details are to be notified under the Harmonized System of Nomenclature (HSN) list.
• Miscellaneous High-Taxed Items: Imported or dutiable personal-use articles and other miscellaneous goods have shifted from 28% to 40%. Specifics will be detailed in official notifications.

The Rationale Behind the Overhaul

The GST Council's decision to introduce this new tax structure is driven by several factors:

• Discouraging Harmful Consumption: By increasing the tax burden on sin goods, the government aims to make these products less affordable and reduce their consumption. This aligns with public health goals and seeks to mitigate the negative social and health impacts associated with these items.
• Revenue Generation: The higher tax rates on sin goods and luxury items will generate additional revenue for the government. These funds can then be used to finance public welfare programs and other developmental initiatives.
• Simplification of Tax Structure: The GST overhaul also involves simplifying the overall tax structure by reducing the number of tax slabs. The new structure primarily consists of two main slabs: 5% for essential goods and 18% for standard items. This simplification aims to improve tax compliance and reduce administrative complexities.

Impact and Expectations

The GST overhaul is expected to have a wide-ranging impact on various sectors of the Indian economy. While sin goods and luxury items will become more expensive, several daily essentials and consumer goods will see a reduction in tax rates. This is expected to provide relief to the common man and boost consumption.

The government anticipates that the reforms will be fiscally sustainable, with increased revenue collections offsetting any potential losses from the reduction in tax rates on certain goods. The changes are also aimed at promoting ease of living and doing business in India.