The Modi government’s plan for “next-generation GST reforms,” first outlined by Prime Minister Narendra Modi in his Independence Day 2025 address, is beginning to take shape.
On Thursday, after much deliberation, the Group of Ministers (GoM) on GST rate rejig finally gave nod to a major revamp of the tax structure, clearing the way for a simplified two-slab system.
Bihar Deputy Chief Minister Samrat Choudhary said after the meeting that the GoM has agreed to abolish the existing 12 per cent and 28 per cent rates, replacing them with a dual structure of 5 per cent and 18 per cent. The proposal will be tabled before the GST Council in September, where ministers from the Centre and all states will take a final call.
The reform plan has also brought “sin goods” or demerit goods into focus. These items already face steep duties through a mix of GST and compensation cess. For instance, chewing tobacco currently carries a 160% cess, while gutka attracts 204%. Cigarettes are subject to multiple layers of taxation, including GST, cess, and the National Calamity Contingent Duty (NCCD), resulting in an overall tax burden much higher than standard slabs.
As part of the restructuring, the Centre has proposed a new 40 per cent GST slab specifically for sin and luxury goods. This category is expected to include tobacco, pan masala, and high-end luxury cars. UP’s Finance Minister Suresh Kumar Khanna confirmed that ultra-luxury and sin goods have been earmarked for the 40 per cent slab under the new GST framework.
However, some states have argued for additional levies over and above the 40 per cent rate. West Bengal Finance Minister Chandrima Bhattacharya said her state has recommended an extra charge on top of the slab to ensure the current tax incidence on ultra-luxury and sin goods remains unchanged.
So, what exactly qualifies as sin goods? Here’s a detailed look at their tax structure:
| Category | Items | GST Rate (2025) | Compensation Cess |
| Tobacco & Tobacco products | Cigarettes, cigars, pan masala, gutka, chewing tobacco, hookah, nicotine substitutes | 40% proposed (previously 28%) | Cess varies — up to 96% |
| Sugar-sweetened Beverages | Aerated water, carbonated drinks, caffeinated beverages | 40% proposed (previously 28%) | 12% (on some items) |
| Gambling/Betting | Lottery tickets, casinos, online gaming/gambling | 40% proposed (previously 28%) | None/variable |
| Vehicles | High-end luxury automobiles (SUVs, cars above 1500cc, over 4m length) | 40% proposed (previously 28%) | 22% |
| Processed Foods | Foods high in sugar, salt, trans fats (e.g., fast food, junk food) | 40% proposed (previously 28%) | None/variable |
Interestingly, alcohol is out of the GST ambit. This is because Indian Constitution's Article 366(12A) keeps alcohol out of GST and the taxation of the liquor is under the state jurisdiction. So rather GST, alcohol in India faces excise duty, which is decided by each state. hence, there is a big difference in liquor prices from state to state.
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