Even as the GST Council has pushed cigarettes, pan masala, and other “sin goods” into the new 40% tax slab under its sweeping GST 2.0 reforms, alcohol will continue to remain outside the ambit of the Goods and Services Tax. The decision underscores the Centre and States’ long-standing position that liquor taxation must remain under State control.
As per the latest GST push, products falling under the category of sin goods, like cigarettes, tobacco products, Ghutka, etc, will be levied a tax of 40% as compared to the earlier tax of 28%, a 12% increase. This is primarily done to discourage the public from consuming these products. However, the government also looks at levying a greater source of revenue.
According to the FAQs issued by PIB, “The special rate is applicable only on few select goods, predominantly on sin goods and a few luxury goods and therefore is a special rate. Most of these goods attracted Compensation Cess in addition to GST. Since it has been decided to end the Compensation Cess levy, the Compensation Cess rate is being merged with GST so as to maintain tax incidence on most goods. On other goods and services, the special rate has been applied as these were already attracting the highest GST rate of 28%.”
Revenue concerns for States
Excise duties on alcohol form one of the most significant revenue streams for State governments. In several States, collections from liquor account for 15%–25% of own tax revenues, providing fiscal space for welfare and development spending. Tax experts note that subsuming alcohol under GST would severely curtail these earnings.
If alcohol is brought into the jurisdiction of GST, the states would lose autonomy over one of their most dependable tax sources. Since GST’s launch in 2017, successive meetings of the Council have avoided the issue, wary of political resistance from States.
Unlike tobacco, which already attracted 28% GST plus cess before being moved into the higher 40% slab, alcohol has remained outside the GST framework entirely. States continue to exercise the power to levy excise duties and set their own pricing regimes, a system that the new reforms have left untouched. Instead of GST, alcohol continues to be taxed through a combination of State-level levies. These include excise duty, which is the primary source of revenue from liquor sales, Value Added Tax (VAT) imposed at varying rates across States, and in some cases, additional cesses or surcharges. This layered system makes alcohol a notable exception within India’s otherwise unified indirect tax framework under GST.
Consumption deterrent
Although alcoholic beverages themselves are kept outside the GST regime, the tax is applicable to several related activities. Services such as bottling and packaging, transportation and logistics, equipment purchase and maintenance, as well as advertising and marketing, all attract GST. This creates a dual structure where the product is taxed under State levies, but much of the value chain around it falls under GST.
Global practices, too, vary. While countries such as Australia and New Zealand include alcohol under a single national goods and services tax, many others treat it as a separate category of excise. In India, the dual objectives of revenue security for States and social deterrence have weighed against harmonisation.
With GST 2.0 set to roll out on September 22, 2025, consumers will face steeper prices on cigarettes, sodas, and processed foods. It is essential to note that only the alcohol packaged for consumption stays out of the GST, whereas alcohol used for industrial purposes will come under the new GST regime.