Is GST on Alcohol Applicable?
12 Jul, 2025
By Online Legal India
Published On 12 Jul 2025
Category GST
GST, the current taxation system in India, has replaced many indirect taxes and now covers a wide range of goods and services. Starting from essential items to luxury products, GST applies to almost everything. However, alcohol meant for human consumption stands apart. Though it is commonly traded and highly taxed, it doesn’t follow the same rules. In this blog, you will learn about GST on alcohol and how to get a registration in detail.
No, GST does not apply to alcohol meant for human consumption. As per Article 366 (12) of the Indian Constitution, alcohol is kept outside the scope of GST. The GST council has confirmed this exclusion in its official notification.
On the other hand, alcohol based products, like hand sanitisers, perfumes, and industrial use ethanol, do attract GST since they are not meant for direct consumption.
Even though GST is implemented across India, alcohol for human consumption is not taxed under it. Instead, it follows a state-specific taxation model. Here’s how alcohol is taxed:
This is the main tax on alcohol. Every state decides its own excise duty rate, which creates price differences across the country. Excise duty is a major revenue source for state governments.
For example, in Karnataka and Tamil Nadu, over 78% of total tax collections from alcohol come from excise duty alone.
States also charge VAT on the sale of alcohol. VAT rates vary across regions, adding to the overall price variation.
For instance:
Alcohol is outside GST, but many related inputs and services are taxed under GST, such as:
These costs add to the operational expenses for alcohol manufacturers. Although they don’t impact state-level tax, they increase the overall cost, which may affect final pricing.
The GST framework does not cover alcohol for human consumption. This exclusion is based on two key reasons:
Alcohol provides a major share of income for state governments. Taxes on liquor and beer contribute around ?90,000 crore every year. If alcohol comes under GST, this revenue shifts to the Centre. To protect this income, the government allows states to keep full control over alcohol taxation.
States use high taxes on alcohol to keep liquor prices elevated. This policy discourages excessive use and reduces health and social risks linked to alcohol. Leaving alcohol out of GST helps states manage this control without any central interference.
Even though GST does not apply to alcohol, the overall cost of liquor increases due to several indirect factors:
Under VAT, raw materials used in liquor production attract 12% to 15% tax. After the GST rollout, the tax on most of these inputs increases to 18%. This shift raises the basic cost of manufacturing liquor across all categories.
Before GST, transport and freight services attract around 15% service tax. Now, GST imposes 18% tax on these services. As a result, the overall cost of moving goods from factories to warehouses and retailers goes up.
Liquor businesses pay GST on inputs such as packaging, equipment, and logistics. However, they do not receive credit on this tax because alcohol is outside the GST system. This creates an extra tax cost that adds to their financial burden.
Due to high input and transport costs, manufacturers revise their pricing. This adjustment increases the final retail price of liquor. Even if state VAT remains unchanged, the end consumer pays more for the same product.
GST on Alcohol -related services are listed below:
Manufacturers use items like bottles, caps, cartons, and labels. These packaging materials attract 18% GST. This tax adds to the base production cost because liquor companies cannot claim input tax credit.
Movement of liquor from manufacturing units to retailers involves road transport. When a Goods Transport Agency (GTA) provides the service:
In both cases, liquor companies pay the tax, but they cannot claim input credit, which adds to logistics expenses.
Alcohol brands often pay bars, clubs, or event spaces to promote their products. These promotional services fall under GST. The service provider must issue an invoice and collect GST from the brand. The liquor company pays the tax without any credit benefit, increasing overall marketing costs.
These GST-linked input costs—on packaging, transport, and marketing—raise operational expenses. Since liquor is a GST-exempt product, manufacturers cannot claim Input Tax Credit. This creates a tax cost buildup, which reflects in the final consumer price.
The state-controlled taxation system for alcohol creates notable challenges for consumers across India. It affects both pricing and transparency.
Each state sets its own excise duty and VAT rates on alcohol. This causes major price differences for the same product across regions.
For example:
This inconsistency means that consumers in different states pay very different prices for the same brand or product.
Alcohol stays outside the GST framework. Unlike GST-covered goods, there is no nationwide tax uniformity.
Consumers cannot clearly see how much tax applies to each bottle of liquor, since pricing depends on multiple state-specific components. This lack of standardisation reduces price clarity and creates confusion at the point of sale.
The current system causes price gaps between states and limits the consumer’s ability to understand the final cost. It affects both affordability and transparency.
The alcohol-based products on which GST is applicable are listed below
The exclusion of alcohol from GST creates a dual tax environment that directly affects how alcohol businesses operate and manage costs.
Alcohol businesses deal with two parallel tax systems. States impose excise duty and VAT on the final product, while GST applies to input goods and services such as packaging, machinery, transport, and advertising. This separation adds complexity to routine financial operations.
Since alcohol remains outside the GST framework, manufacturers cannot claim Input Tax Credit (ITC) on GST paid for inputs. This builds up the tax cost across the supply chain. As a result, overall production expenses rise. Most businesses pass this cost to consumers through higher pricing.
Additionally, managing both state and GST systems increases administrative work. This shift pulls time and effort away from core business goals like production, expansion, or customer service.
India’s dual taxation system puts unique financial and operational pressure on microbreweries and small-scale liquor businesses.
Small producers purchase inputs such as bottles, labels, caps, and machinery at GST rates around 18%. They also pay GST on services like branding, advertising, and transport. These input taxes directly raise the cost of production. With smaller output volumes, cost increases weigh more heavily on their operations.
Since alcohol remains outside GST, these businesses cannot claim credit for GST paid on inputs. The GST amount becomes a direct cost. This limits cash flow and reduces profit margins. For microbreweries that operate with limited capital, this creates a financial disadvantage.
Higher operational costs and no input tax relief restrict the ability of small producers to scale their businesses. Larger competitors often absorb such costs or offset them with volume-based efficiencies. Meanwhile, microbreweries face hurdles in managing tax compliance due to fewer administrative resources. These factors slow down business expansion and affect long-term stability.
Alcohol stays outside the GST system, keeping tax control with states. But businesses still pay GST on inputs like packaging, transport, and ads—without input tax credit. This raises costs, especially for small players. Consumers see price differences across states and no clear tax breakdown.
For smooth compliance, expert support in alcohol-related legal processes and assistance in filing a GST registration, connect with Online Legal India.
No, GST is not applicable on alcohol for human consumption. It remains outside the GST framework as per Article 366(12) of the Indian Constitution. States levy their own excise duty and VAT on alcohol.
Yes, VAT is applicable on alcohol. Each state in India imposes its own VAT on liquor sales, leading to different price points for the same product across the country.
GST at 40% does not apply to any beverage. Alcoholic beverages are not covered under GST, while non-alcoholic beverages like soft drinks attract 28% GST plus 12% cess, not 40%.
GST is not applicable on whisky or any liquor meant for human consumption. Instead, states charge excise duty and VAT, which vary. Input costs related to whisky production, however, are taxed under GST.
Several products attract 18% GST, including alcohol-related inputs like bottles, caps, labels, transport services, advertising, and packaging materials used in liquor manufacturing.
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