Centre mulls raising GST ceiling on luxury and sin items above 40%: Report

On August 20, Finance Minister Nirmala Sitharaman met with ministerial groups on compensation cess, insurance, and tax restructuring to underline the urgency of reform.

The Goods and Services Tax (GST) Council, slated to meet on September 3-4, will reportedly examine a proposal to increase the maximum permissible slab rate beyond the current 40 per cent to ensure high-end items, such as SUVs and sin goods, continue to face steep taxation.

At present, SUVs attract 28 percent GST along with a compensation cess of 15–22 percent, pushing the effective levy to 43–50 percent. Legally, Section 9(1) of the CGST Act, 2017, caps the maximum GST rate at 40 per cent.

The Centre, with backing from a Group of Ministers, has suggested a dedicated 40 percent slab for a small set of goods, states a report by the Business Line. However, some states, including West Bengal, are reportedly pressing for amendments to allow rates higher than that ceiling.

According to officials cited in the report, while compensation cess is levied under a separate law, cess in general is non-shareable under the Constitution, restricting its use.

Raising the ceiling would, therefore, provide both the Centre and states greater flexibility to sustain GST revenue from specific categories.

Existing excise duties on tobacco provide scope for additional taxation, so the overall incidence can be preserved even without a cess, as per officials cited in the report. However, a higher GST ceiling would still provide leeway for tax authorities to impose steeper levies if required.

The Centre’s push for a simpler GST regime cleared a key hurdle on August 21, with the Group of Ministers (GoM) on rate rationalisation endorsing a shift to a two-slab structure.

Bihar Deputy Chief Minister Samrat Choudhary stated that the panel had agreed to scrap the current 12 percent and 28 percent slabs in favour of just two, 5 percent and 18 percent.

The proposal will now move to the GST Council, which is scheduled to meet in September with participation from Union and state ministers.

The decision is seen as the first significant step towards rolling out the “next-generation GST” reforms that Prime Minister Narendra Modi highlighted in his Independence Day 2025 speech.

The GoM on rate rationalisation includes ministers from Kerala, Uttar Pradesh, Rajasthan, West Bengal, Bihar, and Karnataka.

On August 20, Finance Minister Nirmala Sitharaman met with ministerial groups on compensation cess, insurance, and tax restructuring to underline the urgency of reform.