On 3 September 2025, the Goods and Services Tax (GST) Council, under the leadership of Finance Minister Nirmala Sitharaman, sanctioned a sweeping reform of India’s indirect tax regime—commonly referred to as “GST 2.0.” This reform collapses the existing four-slab structure into a simplified, two-rate system—5 per cent and 18 per cent—while introducing a new highest 40 per cent “demerit” rate specifically for super-luxury and ‘sin’ goods. This overhaul, which modernises and streamlines GST implementation, is slated to take effect from 22 September 2025, coinciding with the commencement of Navratri .
While the overarching narrative emphasises the benefits of reduced rates on common essentials and the pursuit of ease of living for ordinary citizens, financial provisions for sin goods and luxury items have intensified. In this article we explore in detail the specific products whose prices are now poised to rise and why drawing upon the most recent and authoritative sources.
At the heart of this reform lies the newly introduced 40 per cent GST slab, intended to serve as both a punitive and revenue-raising mechanism. This rate applies to a carefully curated roster of goods and services deemed either harmful (sinful) or extravagantly luxurious.
Among these are classic tobacco and allied products—paan masala, gutka, cigarettes, chewing tobacco (such as zarda), bidis, unmanufactured tobacco, and even cigars, cheroots and cigarillos. Additionally, all aerated waters containing added sugar and other sweeteners, carbonated beverages (including those with fruit juice), and caffeinated drinks are swept into this powerful tax bracket .
The swath of luxuries subject to the new rate stretches further still. Mid-size and large cars—notably those with engine capacities exceeding 1,200 cc petrol or 1,500 cc diesel, or with a length beyond 4,000 mm—will now bear the 40 per cent GST burden. Motorcycles with engine volumes over 350 cc will similarly be hiked into this slab. Also under its purview are helicopters, yachts, personal-use aircraft, and other high-end transport items . Intriguingly, online gambling and gaming, often classified as demerit services, have also been pulled into this top-tier rate .
Importantly, though these are the declared targets of the 40 per cent slab, some of the tobacco-related goods—including paan masala, gutka, cigarettes, and chewing tobacco—will continue under the prevailing regime for the moment. They will remain taxed at the existing GST plus compensation cess until outstanding loans and interest tied to the cess are fully repaid. Only thereafter will they officially migrate into the new 40 per cent category .
To break it down in everyday terms: what will undoubtedly become costlier under the new regime? The short answer: sugary, fizzy and caffeinated beverages; high-capacity motorcycles; mid- and large-sized cars; and luxury items such as yachts and aircraft. Tobacco products are also slated to become costlier eventually, but only once the transition is complete. Even so, the government’s fiscal exercise, combining punitive taxation with simplicity, is clear and deliberate.
This reform embodies a dual design: it penalises consumption of harmful or extravagant goods—thus meeting public health and social equity goals—while also raising revenue at a time when the economy is under pressure from external challenges, including retaliation via U.S. tariffs on Indian exports . By placing essential items into cheaper slabs and working to discourage or capitalise on high-demand sin goods, the government aims to spur domestic demand and raise efficient revenue, all the while simplifying administration and compliance .
From a behavioural standpoint, many of the items in the 40 per cent bracket—particularly tobacco and carbonated beverages—are considered price inelastic. That is, consumers tend to continue purchasing them despite higher prices. This makes them effective targets for fiscal deterrence, while simultaneously serving as dependable streams of state revenue .
Moreover, the reform brings political consensus. With delegates from all Indian states represented in the GST Council, the two-slab structure and the demerit rate were unanimously approved, signalling national accord for this historic tax remapping .
Summary: Items That Will Cost More After 22 September 2025
Carbonated and sugary drinks, including aerated waters with added sugar, carbonated fruit drinks, and caffeinated beverages.
Motorcycles over 350 cc engine capacity.
Cars beyond specified limits (mid-size and larger, exceeding 1,200 cc petrol or 1,500 cc diesel, or over 4,000 mm in length).
Luxury personal transport such as yachts, helicopters, and personal aircraft.
Online gambling and gaming activities.
Tobacco-related goods (paan masala, gutka, cigarettes, chewing tobacco, bidis, unmanufactured tobacco, cigars, cheroots, cigarillos)—once the cessation of compensation-cess loans is complete.
Naturally, consumers of these products should brace for significant price increases once the 40 per cent rate is enforced. Manufacturers and importers of sugary drinks, high-capacity motorcycles, premium cars, and tobacco products can expect increased tax liability and may need to strategise accordingly—whether via pricing adjustments, supply reconfiguration, or lobbying for revisions down the line.
Retailers, particularly in beverage and automotive sectors, will have to adapt inventories and pricing structures, ensuring that GST changes are accurately reflected in final prices. Fiscal planners at both central and state levels must anticipate the potential for increased revenue from sin goods, and also address the possible reduction in revenue from freed-up essential goods now shifting to lower slabs.
From a macroeconomic perspective, this tax realignment could support broader consumption by reducing taxation on essentials, deliver revenue stability via higher taxes on inelastic goods, and improve GST administration by vastly simplifying the slab structure from four down to two primary rates plus the demerit rate.
In conclusion, the GST 2.0 overhaul of 2025 marks a milestone in India’s tax evolution. Its simplicity, merging four slabs into two and its targeted approach sharpening taxes on sin and super-luxury items via a 40 per cent rate—hold transformative potential. For consumers, certain indulgences will grow costlier: fizzy drinks, big bikes, large cars, motorised luxuries, tobacco—all will see their bills tick upwards. For businesses and policymakers, the reform brings clarity, fiscal opportunity, and a streamlined regime that may well endure as a signature legacy of this GST era.
Written by- Akash Paul
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