GST Panel Recommends 40% Tax on Luxury Cars; Backs Two-Slab Rate Structure

In a significant move toward simplifying India’s indirect tax structure, a panel of state finance ministers has proposed a special 40% Goods and Services Tax (GST) on high-end luxury cars, apart from sin goods including tobacco and related products. The proposal is part of a broader plan to overhaul the GST rate structure, which currently includes multiple slabs.

The Group of Ministers (GoM) concluded its two-day crucial meeting on Thursday, where consensus was reached on a proposed two-rate structure — 5% for merit goods and 18% for standard items — along with a special 40% slab for select categories.

“The GoM on rate rationalisation has recommended a two-slab GST structure. We will be submitting our recommendations to the GST Council,” said Samrat Choudhary, Bihar finance minister, who is also heading the GoM.

“All states have welcomed the Centre’s proposal, keeping the common man’s interest in mind. We are thankful to Prime Minister Modi for his vision of providing relief to the public. A 40% GST has been proposed on luxury and sin goods. It’s too early to comment on revenue loss,” added Suresh Kumar Khanna, finance minister of Uttar Pradesh.

Additionally, the GoM suggested an extra levy over the 40% base rate for products like tobacco and pan masala to offset any potential revenue loss to the Centre and states.

“The law should be amended to allow an additional levy over the 40% GST on sin goods to compensate for revenue loss. All states support the Centre’s proposal as it is people-friendly. We’ve also asked for revenue loss estimates. The proposal will be placed before the next GST Council meeting,” said Chandrima Bhattacharya, West Bengal finance minister.

According to sources, the panel has agreed that the existing 12% and 28% slabs will be scrapped under the new regime — a move that aligns with the long-standing goal of simplifying GST through rate rationalisation.

"The objective is to move toward a simpler and more transparent GST regime while ensuring revenue protection for both Centre and states,” a senior official present in the discussions told NDTV Profit.

While most goods and services would see the significant rate reduction, luxury automobile manufacturers and importers could see higher taxes. Tobacco and related companies may face increased costs. Online gaming platforms could be classified under the 40% bracket, depending on final classification.

The GoM will now submit its final report to the GST Council, chaired by Finance Minister Nirmala Sitharaman. The Council is expected to meet on Sept. 18–19 to take up these recommendations for formal discussion and possible approval.

India currently follows a four-slab GST system — 5%, 12%, 18%, and 28% — along with an additional cess on sin and luxury goods. The rationalisation effort aims to reduce classification disputes, simplify compliance, and boost overall tax efficiency.

”The reduction in GST rates is a welcome move that should translate into direct benefits for consumers. At the same time, one of the industry’s larger concerns remains around working capital and potential long-term cost implications in cases of inverted duty structures," said Abhishek Jain, indirect tax head & partner, KPMG.

"With the government indicating a review of refund mechanisms under inverted duty structure, businesses are hopeful of constructive steps that will help ensure price reductions flow through to end products,” he added.