On September 3, 2025, the GST Council — chaired by Finance Minister Nirmala Sitharaman — unveiled sweeping tax reforms aimed at simplifying India’s GST structure. These changes, set to benefit everyday consumers, also bring heavier levies on indulgent and luxury items. Here's a straightforward breakdown of what’s changing and how it will affect you.
A Simpler, Two-Tier GST System
Previously, India’s GST had four slabs: 5%, 12%, 18%, and 28%. From September 22, this structure will be streamlined to just two main rates: 5% and 18%.
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5% will now cover many essentials—like everyday household items, packaged foods, and farm inputs.
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18% will apply to products like small cars, air conditioners, televisions—items moving down from the higher 28% slab.
New 40% GST Slab for Sin & Luxury Items
A new 40% GST slab has been introduced for products deemed harmful or extravagant—for example:
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Tobacco, pan masala, cigarettes, gutkha, chewing tobacco, zarda, bidi.
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Sugary, carbonated, caffeinated, and flavored beverages with added sugar.
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Luxury and high-capacity cars (petrol >1200cc / diesel >1500cc), big bikes (>350cc), yachts, private aircraft, racing cars, etc.
This 40% slab replaces the earlier cess structure and represents a significant hike for many items from the 28% bracket.
However, taxation on tobacco and pan masala will remain under the current GST + compensation cess structure for now, until the government repays existing loans tied to that cess mechanism. Once those obligations are cleared, these items will be moved to the 40% slab.
It's estimated that tobacco prices may ultimately rise by 5–6% once the switch happens, especially since GST will now be levied on the printed retail sale price rather than the transaction value, tightening tax compliance.
When Do These Changes Take Effect?
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September 22, 2025: New rates (5%, 18%, and 40% for most items) come into force, coinciding with the start of Navratri.
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Tobacco and pan masala: Stay under the old system until cess loans are fully repaid; date for moving to 40% is yet to be confirmed.
What This Means for You
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Daily-use essentials: Grocery items, personal care products, and home supplies become more affordable.
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Big-ticket regular items: Smaller cars, TVs, and air conditioners drop into lower tax brackets.
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Indulgent or luxury purchases: Cigarettes, sugary drinks, big cars, luxury bikes, yachts—all become much more expensive.
While consumers of everyday items stand to benefit, those eyeing indulgences will face higher costs—pushing buyers toward healthier or more economical choices.
India’s GST overhaul, effective September 22, 2025, marks a bold shift toward simplicity and fairness. It cuts costs on essentials while imposing heavier taxes on sin and luxury items. The phased transition of tobacco taxes also shows a careful balancing act between finance and policy.