Liquor, Tobacco and Sin Goods
India's 40 Percent GST Slab
How the 2025 GST reform created a special 40 percent rate for sin and luxury goods, replacing the compensation cess, and what it means for prices and revenue.
In September 2025, India’s GST Council simplified the tax structure.
The new structure
- Most goods moved to 5 percent or 18 percent slabs.
- A special 40 percent rate was created for sin and luxury goods.
What’s in the 40 percent slab
- Pan masala, cigarettes and other tobacco products (after the cess transition ends).
- Aerated and sugary drinks.
- Large cars and motorcycles above certain engine sizes.
- Online betting and certain gambling services.
The compensation cess
When GST began in 2017, a compensation cess on sin and luxury goods funded payments to states for lost revenue. The cess was used to repay loans taken during COVID-19 and is being phased out, with the 40 percent slab replacing it.
Why a separate slab
- Discourage harmful consumption.
- Maintain revenue as the cess ends.
- Simplify multiple cesses into one rate.
Debates
- Whether 40 percent is high enough for tobacco, given WHO recommendations that taxes make up at least 75 percent of retail price.
- Beedis moved to a lower slab.
A bottle of aerated drink falls under the 40 percent rate, while packaged fruit juice without added sugar may fall in a lower slab, nudging choices.
The 2025 reform created a 40 percent slab for sin and luxury goods.
- The 2025 GST reform created 5, 18 and 40 percent slabs.
- The 40 percent slab covers tobacco, sugary drinks, big cars and betting.
- It replaces the compensation cess.
- Health experts debate whether it's high enough for tobacco.
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