Ankit Rahangdale is a seasoned finance professional with a distinguished background as a Chartered Accountant. Currently, he leads the Finance Department at Pice. With over five years of invaluable experience in the banking and finance sector, honing his expertise through esteemed institutions such as ICICI Bank and Standard Chartered Bank.
19 Jun 25
6 mins
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Impact of GST on Alcohol Industry: Tax on Liquor in India
Consumable alcohol remains outside the purview of GST, continuing to be governed by state-level excise duty and VAT.
Input materials used in liquor production attract GST, increasing production costs without input tax credit benefits.
Higher logistics and raw material taxes under GST have raised liquor prices, even though the final product is GST-exempt.
Liquor manufacturers face reduced profitability, as increasing prices risks losing market share to cheaper alternatives.
The GST exemption creates a fragmented taxation landscape, affecting quality, pricing, and competitiveness in the alcohol industry.
After the introduction of Goods and Service Tax (GST) in India, in 2017, the supply of all goods and services, be it interstate or intrastate, attracts GST. However, there are certain exceptions to the GST law. One major exception is consumable alcoholic liquor, which does not fall under GST.
Despite this exemption, the alcohol sector, especially the segment dealing with consumable alcohol, has felt a notable impact. In this blog, let us explore the impact of GST on alcohol industry in detail.
Which category of liquor attracts GST?
Liquor for human consumption in India is free of GST. However, the taxes prevailing before the introduction of GST in India, continue to apply to the sale of liquor. Here are the earlier taxes applicable on liquor in India:
● Excise Duty: Excise duty is levied by the government on goods manufactured within the country. In other words, domestic products, including alcoholic products, attracted this tax in India.
● Value Added Tax: VAT, an indirect tax was levied at all the stages of production and sale of alcohol, including procurement of raw materials and commercial distribution of finished product to end-users.
The table below illustrates the types of alcohol that attract GST;however, they, are not for consumption:
Harmonised System of Nomenclature (HSN) Code
Type of Alcohol
Applicable GST Rate
2207
Denatured alcohol, hard drinks, ethyl alcohol
18%
As above
Ethyl alcohol supplied to marketing companies dealing in oil, where they blend the ethyl alcohol with the motor spirits
5%
Reasons for No GST on Alcohol in India
Here are the key reasons why the Indian government chooses not to impose a tax on liquor meant for human consumption:
Alcohol serves as a major source of revenue for state governments, generating approximately ₹90,000 crore annually.
Consumable alcoholic drinks already have high prices to prevent excessive drinking by people in India.
The following are the impacts of levying tax on liquor or alcoholic beverages:
As the state government levies tax on consumable alcohol, the Central government does not levy any tax rate. This might adversely affect the profitability of diverse liquor producers.
The raw materials used in the production of alcohol for consumption such as barley, denatured alcohol, molasses and glass bottles are taxed at 18% and 28%. Thus, liquor producers have to bear the tax burden. However, sellers increasing the price would adversely impact the sales. Before the introduction of the GST Act, transport and freight services were taxed at 15% under service tax. After GST came into effect, this rate increased by 3%. Although VAT rates on these beverages haven’t changed significantly, the overall cost of liquor has gone up due to this revision.
No tax on alcohol has pushed up its overall cost because of higher taxes on input materials. Since the final product is tax-exempt, manufacturers must bear input taxes and later claim a refund for the accumulated Input Tax Credit (ITC).
There are multiple inferior-quality brands available in the market. Consumers often look for cost-effective brands of alcohol. Increasing the price of liquor would result in lower profits for alcohol producers.
State governments in India bear the effects of decreasing profits.
Inferior quality liquor that consumers can easily afford will likely affect their health adversely.
Beer is excluded from the purview of GST in India. This has raised concerns among liquor manufacturers, as they believe its low alcohol content of just 5% does not justify such exclusion.
Conclusion
The impact of GST on the alcohol industry is evident from the increase in liquor prices. While consumable alcohol does not attract GST, excise duty and VAT on alcohol are still applicable. On the flip side, other types of alcohol and the raw materials used to produce consumable alcohol attract GST.
This has increased the sale price of consumable alcohol, resulting in reduced profits in the liquor industry. Thus, despite no imposition of GST, the tax liability and burden continues to persist for alcohol producers.
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FAQs
Why is consumable alcohol exempted from GST in India?
Consumable alcohol is exempted from GST primarily because it is a significant source of revenue for state governments, generating over ₹90,000 crore annually. Including it under GST would transfer tax authority to the Centre, thereby reducing states’ fiscal autonomy. Moreover, the government uses high excise duties and VAT to regulate consumption and discourage overuse.
Does GST apply to raw materials used in alcohol production?
Yes, GST is applicable to raw materials used in alcohol production such as molasses, barley, denatured alcohol, packaging materials, and freight services. These attract GST rates ranging from 18% to 28%. Since the final product (alcohol for human consumption) is exempt from GST, manufacturers cannot claim Input Tax Credit (ITC), leading to increased overall production costs.
How has GST affected the pricing of alcoholic beverages?
Although alcohol itself is GST-exempt, the taxation on input materials and logistics has raised production costs. This often leads to higher retail prices. However, to remain competitive, producers hesitate to fully pass on these costs to consumers, which ultimately impacts their profit margins. The indirect pressure of GST is thus felt despite the product's exemption.
Is beer included under GST or exempt like other alcoholic beverages?
Beer, like other alcoholic beverages meant for human consumption, is also excluded from GST. However, industry stakeholders argue that since beer has a low alcohol content (around 5%), it should be treated differently. They believe its exclusion from GST is unjustified and creates an uneven playing field, especially when health-conscious consumers prefer beer over spirits.
Can liquor manufacturers claim Input Tax Credit (ITC) under GST?
No, liquor manufacturers cannot claim ITC for GST paid on input goods and services used in producing consumable alcohol. This is because the final product is not under GST coverage. This results in tax cascading, where taxes are levied on already taxed inputs, reducing cost efficiency and profitability for producers in the industry.
Ankit Rahangdale is a seasoned finance professional with a distinguished background as a Chartered Accountant. Currently, he leads the Finance Department at Pice. With over five years of invaluable experience in the banking and finance sector, honing his expertise through esteemed institutions such as ICICI Bank and Standard Chartered Bank.
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