The GST Council has made a big decision to increase taxes on certain harmful and luxury goods. Starting from September 22, 2025, these goods will now face a higher 40% tax rate, up from the current 28%. This change is part of the GST 2.0 reform, which simplified taxes into mainly two rates: 5% and 18%.
Items like tobacco, sugary drinks, and luxury cars will see this tax boost. Specifically, cigarettes, cigars, gutkha, chewing tobacco, bidi, and pan masala will all be taxed at 40%. Luxury vehicles with engine sizes over 1200cc for petrol and over 1500cc for diesel will also fall into the 40% tax slab. Similarly, sweetened and fizzy drinks will now face higher taxes.
Why are these taxes being increased? These are called “sin taxes,” aimed at discouraging consumption of harmful products and generating more revenue for public welfare. Together with cess taxes, the overall tax on tobacco will stay at 88% for now, but once certain loans are paid off, tobacco products will be moved to the 40% slab.
Alcohol, however, is not affected by GST and continues to be taxed separately by state governments.
Interestingly, one major company, ITC Ltd, which earns most of its profit from cigarettes, might face some challenges due to the tax hike. But some experts believe that the price hike could also bring stability in regulations.
With this increase in taxes, prices of consumer goods are expected to come down, which could boost demand and help the economy grow. Overall, higher taxes on luxury and harmful goods aim to balance health concerns with economic benefits.
