As the Centre pushes ahead with plans to simplify the GST rate structure, sin and demerit goods — including cigarettes, chewing tobacco and gutka— will remain under high tax slabs, with no change in overall tax incidence, an official source said.
Though a special 40% GST rate is being proposed as the upper cap under the new two-rate system, sin goods will be kept outside this framework.
These products already attract significantly higher levies through compensation cess. Currently, chewing tobacco faces a 160% cess, gutka 204%, and cigarettes are taxed heavily through a mix of GST, cess and National Calamity Contingent Duty — pushing their effective tax burden well beyond the proposed ceiling.
However, with the Compensation Cess regime ending in March 2026, both Centre and states could explore options of tax treatments on sin goods, to ensure that both public health objectives and revenue needs are met.
The issue will be discussed at the upcoming two-day GST GoM meeting on Aug. 20–21, chaired by the Bihar deputy chief minister, where broader rate rationalisation and slab restructuring will be on the agenda — but with sin goods firmly insulated from any tax relief.
Man-Made Fabrics May Shift To 5% GST Slab
In a move aimed at boosting the domestic textiles sector, the Centre proposed to bring man-made fabrics under the lower 5% GST slab as part of its broader rate rationalisation plan.
Currently taxed at 12%, man-made fabrics have long been a point of contention for industry players, who argue that higher rates have hurt competitiveness and pushed up costs across the value chain.
A shift to 5% would align the GST rate with that of natural fabrics, providing relief to manufacturers and MSMEs operating in the synthetic textile space.
If approved, the move could narrow tax disparities within the textile sector and potentially revive demand in an industry facing global headwinds.
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