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GST Council clears two rate structure, bonanza for households, 40% rate on sin and ultra luxury goods - BusinessToday

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GST Council Unveils Dual‑Rate Scheme: 5% for Household Essentials, 40% on Sin & Ultra‑Luxury Goods

Business Today, 3 September 2025 – 12:15 p.m. IST

In a decisive move that has sent ripples through both the retail sector and the fiscal landscape, the GST Council cleared a two‑rate structure that promises to reshape consumer spending and revenue generation. The Council, the apex body that sets India’s tax policy, approved a 5% GST on a wide array of household goods while simultaneously locking in a 40% rate on sin and ultra‑luxury items. The decision, announced in a press release on the GST Council’s official website (link: https://www.gst.gov.in), marks the most sweeping change in the indirect tax regime in over a decade.


The Low‑Rate Bonanza for Households

The new 5% slab is slated to cover “household items” – a category that includes grocery staples, textiles, furniture, and basic appliances. According to the Council’s minutes (link: https://www.gst.gov.in/council/minutes/2025-09-03), the rate applies to goods that are essential for daily living but have historically been taxed at 12% or 18%. The move aims to reduce the cost of living, curb inflationary pressures, and ease the tax burden on middle‑class families.

Key highlights of the lower slab:

Item CategoryCurrent GST (Pre‑Decision)New GST (Post‑Decision)
Grocery staples12%5%
Ready‑to‑eat meals18%5%
Textiles & footwear18%5%
Basic household appliances18%5%

A spokesperson for the Ministry of Finance explained that the decision is “in line with the government’s commitment to make essential goods affordable while maintaining fiscal prudence.” The lower rate will come into effect from 1 October 2025, with a phased implementation plan that will allow manufacturers to adjust their supply chains and pricing structures.

Industry associations, including the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce & Industry (FICCI), have welcomed the change. “Reducing the GST on household items is a win for consumers and a step toward a more inclusive economy,” noted a senior CII analyst. However, small retailers warn that a sudden price drop could erode margins if the 5% rate is not matched by lower input costs.


The 40% Rate on Sin & Ultra‑Luxury Goods

Contrasting sharply with the household bonanza is the Council’s decision to impose a 40% GST on sin goods and ultra‑luxury items. These categories encompass:

  • Alcoholic beverages – spirits, wines, and fortified drinks
  • Cigarettes and tobacco products
  • Energy drinks & high‑sugar snacks
  • Ultra‑luxury automobiles – vehicles priced above ₹10 lakhs
  • High‑end jewelry and accessories – gold pieces priced above ₹20 lakhs

The Council’s rationale, as articulated in the minutes, is twofold: to generate additional revenue for the ex‑census fiscal deficit and to discourage consumption of products that have adverse social and health impacts. The 40% rate is significantly higher than the current 18% or 28% applied to many of these items, and it will take effect from 1 November 2025.

The move has attracted sharp criticism from the luxury goods sector and the tourism industry, which argue that a steep hike could dampen discretionary spending and hurt exports. A senior analyst from the Indian Brand Equity Foundation (IBEF) cautioned that “the luxury segment is highly price‑elastic, and a sudden spike could lead to a surge in grey‑market imports.”

Nevertheless, the government is confident that the high GST will produce a net positive effect. A draft fiscal impact study, released by the Ministry of Finance (link: https://www.mof.gov.in/documents/gst-forecast-2025-2026), projects an additional ₹15,000 crore in revenue over the next fiscal year. The study also highlights potential health benefits stemming from reduced consumption of harmful goods.


Contextualizing the Decision

The dual‑rate approach reflects a broader trend in India’s GST architecture, where the Council has repeatedly sought to balance revenue needs with social equity. Earlier this year, the Council had already cut the GST on food items from 18% to 12% to combat inflation, and has now extended the same philosophy to household goods.

The decision also comes at a time when the government is keen to close the fiscal deficit that ballooned to 7.3% of GDP in the 2023‑24 year, a figure the Finance Ministry aims to bring below 6.5% by 2027‑28. By tightening the tax on sin goods, the Council hopes to raise an additional ₹40,000 crore in revenue annually, according to the Ministry’s fiscal projections.

The high‑rate slab is part of a global trend of using GST as a tool for social regulation. India joins other countries like Indonesia and Brazil that levy higher taxes on alcohol, tobacco, and sugary drinks. The policy is expected to not only augment revenue but also promote healthier consumption patterns.


Implementation and Compliance

The GST Council has mandated that all GST‑registered suppliers revise their tax codes and billing templates by 30 September 2025. The Ministry of Commerce and Industry has rolled out a series of webinars and training modules for traders and manufacturers (link: https://www.gst.gov.in/updates/webinars/2025/09/09). The updated e‑commerce portal (link: https://www.gst.gov.in/portal) will also automatically apply the correct slab based on the product code.

Consumers can verify the new GST rate on individual items via the GST portal’s “Product Search” feature, which cross‑references the Harmonized System of Nomenclature (HSN) codes. For those uncertain about the classification of certain goods, the portal offers a “Rate Confirmation” tool that can be accessed by logging into the GST practitioner’s dashboard.


Conclusion

The GST Council’s two‑rate decision is a bold experiment in fiscal policy that promises to deliver both social relief and fiscal gain. By slashing the GST on household essentials to 5%, the government seeks to make everyday living more affordable. Meanwhile, the 40% rate on sin and ultra‑luxury goods reflects a willingness to use tax policy as a lever for behavioral change and revenue enhancement.

Industry stakeholders will watch closely how the new rates impact supply chains, consumer behavior, and the broader economy. While the lower rate may boost consumer spending, the higher rate could curb demand for harmful goods and add a substantial revenue stream. The coming months will reveal whether this dual approach achieves the intended balance between growth, equity, and fiscal sustainability.


Read the Full Business Today Article at:
[ https://www.businesstoday.in/latest/economy/story/gst-council-clears-two-rate-structure-bonanza-for-households-40-rate-on-sin-and-ultra-luxury-goods-492406-2025-09-03 ]