The GST rationalisation reforms announced by Finance Minister Nirmala Sitharaman on Wednesday are expected to stimulate consumption in mass-market segments with a shift from a 4-slab GST regime to a more streamlined 2-slab structure: 5% for essential goods and services, and 18% for standard items. However, there are certain sin goods and luxury items that will bear a new 40% rate, keeping these items in the highest tax slab under GST 2.0 regime.

Under GST 2.0, larger cars and SUVs have been placed under the highest 40% tax bracket. The GST rate has been increased from 18% to 40% on non-alcoholic beverages, while the 28-40% tax will be charged on carbonated beverages like fruit drinks or carbonated beverages with fruit juice. The tax has also increased from 28 to 40% on aerated waters, containing added sugar or other sweetening matter or flavoured, and caffeinated beverages.

The GST Council has imposed higher GST of 40%, up from 28%, on luxury cars, excluding those under 18% GST tax slab, large hybrids (petrol) engine cars of more than 1200cc, large hybrids (diesel) of engine more than 15,00cc, big motorcycles engine of more than 350cc, aircraft (personal), helicopters, aeroplanes, yachts and pleasure vessels.

The increased tax of 40%, up from 28%, will apply to sin goods like tobacco and pan masala products such as pan masala (chewing mixtures); gutkha (chewing tobacco mix); cigarettes and cigars; unmanufactured tobacco (for chewing, etc.); zarda, and scented tobacco (chewing types). These items are set to be more expensive for consumers.

The government has also levied a higher GST of 40%, up from 28%, with input tax credit (ITC), which will apply to admission to casinos, race clubs, any place having casinos or race clubs, or sporting events (e.g., IPL). This means all the tickets to these events, including the much-loved IPL, will become expensive with this. The services by a race club for the licensing of bookmakers will also see 40% GST, the new rules suggest.

Leasing or rental services, without the operators of goods, will also attract 40% GST. Specified actionable claims like betting, casinos, gambling, horse racing, lottery, online money gaming, will also see 40% GST.

Explaining the key recommendations made in the 56th GST Council meeting, Grant Thornton Bharat, in its latest report, has stated that higher rates on premium cars, SUVs, luxury goods, and sin items maintain "fiscal neutrality and vertical equity".

It adds that GST 2.0 will reshape India’s tax landscape, both in rate design and compliance architecture. "Consolidation of essential FMCG, household durables, medicines, and mobility products into lower bands eases inflationary pressures, enhances affordability, and boosts disposable income."

The new tax regime also reflects India's maturing tax framework. "The package is both corrective in resolving anomalies such as inverted duty structures and rate disputes, and forward-looking in aligning GST policy with macroeconomic goals of stimulating consumption, boosting domestic manufacturing, and enhancing investor confidence."