GST 2.0: Pan masala, gutka, cigarettes, to luxury cars, flavoured drinks will now fall under 40% 'sin' tax slab

The Goods and Services Tax (GST) Council on Wednesday imposed a special 40 per cent duty on so-called ‘sin goods’ or ‘demerit goods’ such as pan masala, tobacco, aerated drinks and luxury vehicles, while moving the rest of the system to a simplified two-rate structure.

Under the new system, the GST will remove the previous multiple slabs of 5 per cent, 12 per cent, 18 per cent and 28 per cent tax.

Instead, a two-slab framework has been formulated — a merit rate of 5 per cent and a standard rate of 18 per cent.

Which are the 'sin' goods?

On the other hand, sin goods are typically high-end or unhealthy products taxed heavily to generate revenue and reduce consumption. A special 40 per cent levy has been applied for sin goods such as:

-Motorcycles above 350cc

-Cars with engine capacity above 1200cc or length over 4000 mm

-Private jets, aircraft

-Aerated water

-Other non-alcoholic beverages

-Fruit-based carbonated drinks and fruit juice drinks

-Caffeinated beverages

-Pan masala

-Tobacco products such as cigars, cheroots, cigarillos, cigarettes

-Other manufactured tobacco products (including homogenised/reconstituted, extracts, essences)

-Tobacco/nicotine products for inhalation without combustion

-Unmanufactured tobacco

Additionally, casinos, race clubs, and sporting events like the Indian Premier League, yachts, as well as betting, gambling, horse racing, lottery and online money gaming will also be charged with the 40% sin tax.

The use of rental or leasing services will also be charged at the special rate.

The new GST rates for all goods except pan masala, gutkha, cigarettes, chewing tobacco products, unmanufactured tobacco, and bidi will be applicable from September 22, the first day of Navratri.

FM Sitharaman speaks

Finance Minister Nirmala Sitharaman said that these items will remain under the current structure with an additional cess until the government repays the borrowing undertaken during the COVID-19 pandemic to compensate states for revenue shortfall.

She did not mention an exact timeline but indicated the repayment would be completed “well within this calendar year”.

The GST Council has authorised the Ministry to stop cess collection once the loan is repaid.

Several states, particularly those ruled by opposition parties, warned that the abolition of the 12 per cent and 28 per cent slabs could substantially reduce their revenues.

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