Will Alcohol Get Costlier After New GST Rates? Government Clarifies
On September 3, 2025, the Goods and Services Tax (GST) Council announced a sweeping overhaul of India’s tax structure, dubbed GST 2.0, sparking widespread speculation about its impact on everyday goods, including alcohol. With the introduction of a simplified two-slab system (5% and 18%) and a new 40% slab for “sin” and luxury goods, many wondered if liquor prices would soar. The government has since clarified that alcohol will remain outside the GST regime, but rising input costs and state taxes continue to drive up prices. Here’s a deep dive into what this means for consumers and the liquor industry.
GST 2.0: A Simplified Tax Structure
The GST Council, chaired by Finance Minister Nirmala Sitharaman, approved a historic shift from the existing four-tier GST structure (5%, 12%, 18%, and 28%) to a streamlined two-slab system, effective September 22, 2025. Essential goods like processed foods, medicines, and automobiles now fall under the 5% or 18% slabs, while “sin goods” like cigarettes, tobacco, and carbonated drinks have been moved to a new 40% slab to discourage consumption and boost revenue. The abolition of the Compensation Cess, previously levied on top of GST for certain goods, has been merged into the new rates to maintain tax incidence.
However, alcohol remains a notable exception. The government has explicitly stated that alcoholic beverages for human consumption will continue to be taxed under state-controlled excise duties and Value Added Tax (VAT), not GST. This decision preserves a critical revenue stream for states, which collect 15%–25% of their tax revenue from liquor sales.
Why Alcohol Stays Out of GST
The exclusion of alcohol from GST is rooted in fiscal and political considerations. Since the GST regime was introduced in 2017, states have fiercely guarded their authority to tax liquor, which generates approximately ₹90,000 crore annually across India. Bringing alcohol under GST would transfer a portion of this revenue to the central government, reducing states’ fiscal autonomy—a move met with strong resistance.
As per Article 366(12A) of the Indian Constitution, alcohol for human consumption is explicitly excluded from GST, leaving taxation to individual states. This allows states like Karnataka, Maharashtra, and West Bengal to impose hefty excise duties and VAT, often pushing the total tax burden on liquor above 60%. For example, Gujarat bans alcohol entirely, while Puducherry relies heavily on liquor revenue.
The GST Council’s latest decision reinforces this stance. According to FAQs issued by the Press Information Bureau (PIB), “The special [40%] rate is applicable only on few select goods, predominantly on sin goods and a few luxury goods,” but alcohol remains outside this framework.
Why Liquor Prices Are Still Rising
While alcohol itself is exempt from GST, related goods and services—like packaging materials, bottling, transportation, and advertising—are subject to GST, often at 18%. Since the introduction of GST in 2017, input costs for the liquor industry have risen due to higher taxes on raw materials (previously taxed at 12%–15% under VAT) and transportation (now taxed at 18% instead of 15% service tax). These increased costs are passed on to consumers, driving up liquor prices despite no direct GST on the beverage itself.
For instance:
- Glass bottles now attract 18% GST, up from 15%–16% pre-GST.
- Molasses, a key ingredient in liquor production, is taxed at 28%.
- Transportation and freight charges face 18% GST, up from 15%.
Additionally, state-specific excise duties and VAT vary widely, leading to significant price differences across India. A bottle of whiskey might cost far more in Maharashtra than in Goa, a phenomenon dubbed “alcohol tourism.”
The 2024 Union Budget further clarified that Extra Neutral Alcohol (ENA), used in liquor production, is also exempt from central GST, but state taxes continue to apply. This has done little to offset the rising input costs, as manufacturers cannot claim Input Tax Credit (ITC) on alcohol-related production, further squeezing margins and pushing prices higher.
Will Alcohol Get Costlier Post-GST 2.0?
The government’s clarification suggests that the new GST rates will not directly affect alcohol prices, as liquor remains outside the GST framework. However, indirect pressures persist:
- Input Costs: The 18% GST on packaging, transportation, and other services continues to inflate production costs, which are passed on to consumers.
- State Taxes: States may adjust excise duties or VAT to compensate for any revenue fluctuations, especially as the Compensation Cess is phased out.
- Inflation and Demand: With essential goods becoming cheaper under GST 2.0, consumer spending may shift, prompting liquor companies to adjust pricing strategies.
Industry experts, like Shobhan Roy of the All India Brewers Association, have warned that rising input costs could continue to pressure margins, potentially leading to price hikes. In 2017, post-GST, liquor prices rose by 12%–15% due to these factors, and a similar trend may persist.
Consumer and Industry Implications
For consumers, the lack of GST on alcohol means prices will remain high and inconsistent across states. A standardized GST rate could have streamlined pricing and reduced disparities, but states’ reliance on liquor revenue makes this unlikely. For the liquor industry, the dual taxation structure—GST on inputs and state taxes on the final product—creates compliance challenges and limits cost efficiencies. Businesses cannot claim ITC on alcohol production inputs, further driving up costs.
The government’s focus on taxing “sin goods” like tobacco and carbonated drinks at 40% reflects a public health strategy, but alcohol’s exclusion from this slab suggests a pragmatic compromise to avoid antagonizing states. Globally, countries like Australia include alcohol in their GST systems, but India’s approach aligns with nations that treat liquor as a separate revenue source.
Public Reaction and Debate
The announcement has sparked mixed reactions. On X, users expressed frustration over persistent high liquor prices, with one post stating, “No GST on alcohol, but my whiskey still costs a fortune. Thanks, state taxes!” Others see the exclusion as a missed opportunity for tax reform, with a user commenting, “GST 2.0 is great for essentials, but leaving alcohol out just keeps the chaos.” Meanwhile, industry voices continue to lobby for alcohol’s inclusion under GST to simplify compliance and stabilize pricing.
Conclusion
The government’s clarification that alcohol remains outside GST 2.0 puts to rest speculation about a direct tax hike on liquor. However, rising input costs and state-controlled taxes mean consumers are unlikely to see relief at the liquor store. The decision reflects a delicate balance between state revenue needs and the push for tax reform, but it leaves India’s alcohol market fragmented and expensive. As GST 2.0 rolls out on September 22, 2025, the focus on affordability for essentials is clear, but for tipplers, the cost of a drink will likely keep climbing—GST or no GST.
Sources: The Financial Express, ClearTax, TaxBuddy, ABP Live, Times of India
