GST 2.0 Explained: Which Goods Face 40% Tax and Why Tobacco Will Join Later
4 Sep, 2025 11:18 IST|Sakshi Post
In the biggest revamp of the Goods and Services Tax (GST) since it was launched in 2017, the Centre has announced a new tax structure with three major slabs:
- 5% for essential or ‘merit’ goods
- 18% for standard items
- 40% for luxury and sin goods
Most basic food items like milk, paneer, and fresh Indian breads remain exempt from GST. However, packaged foods such as namkeen, bhujiya, sauces, pasta, cornflakes, butter, and ghee will now attract a 5% tax.
To ease the burden on common households, the government has kept essentials affordable while pushing up taxes on luxury and harmful products. Finance Minister Nirmala Sitharaman said the 40% slab will cover items like aerated drinks, carbonated beverages, caffeinated drinks, and non-alcoholic beverages. High-end motorcycles (above 350cc), helicopters, and yachts will also attract the highest tax.
A sin tax is imposed on products considered harmful or socially costly. The idea is to discourage consumption by making them expensive while also raising revenue for public welfare.
Tobacco Products: Shift to 40% Slab Later
Pan masala, cigarettes, gutka, beedis, and other tobacco products are classified as sin goods, yet they will continue under the 28% GST plus compensation cess regime for now.
Finance Minister Nirmala Sitharaman explained that these products will only move to the 40% slab once the government clears outstanding loans and interest tied to the compensation cess. “Until the loan is repaid, the current 28% GST plus cess will continue. After that, tobacco products will shift to the 40% bracket,” Sitharaman said.
Currently, tobacco attracts 28% GST along with a cess that has both fixed (per unit) and percentage-based components. The eventual shift to a flat 40% GST is designed to maintain, and possibly increase, the overall tax burden—ensuring the government doesn’t lose revenue.
By delaying the transition, the government can phase in the new regime smoothly while continuing to fund welfare and health initiatives supported by sin tax collections.
