Products such as cigarettes, tobacco, and gutkha have now been pushed into the 40 per cent GST slab, up from the previous 28 per cent.
The GST Council’s decision to overhaul the tax structure under GST 2.0 has brought significant changes to how several goods are taxed, particularly those categorised as “sin goods”.
While cigarettes, pan masala, and similar products are set to attract a steep 40 per cent GST rate, the government has clarified that alcoholic beverages will remain outside the ambit of the unified tax system. This move reinforces the long-standing stance that liquor taxation must remain under the exclusive control of States.
Higher Taxes for Sin Goods
Products such as cigarettes, tobacco, and gutkha have now been pushed into the 40 per cent GST slab, up from the previous 28 per cent. The government explained that the sharp increase serves a dual purpose: discouraging consumption while also generating additional revenue.
According to FAQs issued by the Press Information Bureau, “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.”
This ensures that while cess collections are phased out, tax levels on these products remain broadly consistent with earlier structures.
Why Alcohol Is Different
Alcoholic beverages are treated as a special case within India’s taxation framework. Unlike tobacco, which was already under GST before being pushed to the higher 40 per cent slab, alcohol remains excluded, reported Financial Express. The reasoning is largely fiscal. Excise duties on liquor account for a major share of States’ revenues, contributing between 15 per cent and 25 per cent of their own tax collections. Including alcohol under GST would significantly limit this revenue stream and reduce States’ autonomy in taxation.
Since the launch of GST in 2017, the Council has repeatedly chosen not to subsume liquor into the system, recognising the political and financial sensitivities involved. States continue to levy excise duties, Value Added Tax (VAT), and in some cases, additional surcharges on alcohol sales. This layered system provides them with dependable revenues and has been left untouched in the new reform package.
Dual Taxation in the Supply Chain
Although alcohol as a final product remains exempt from GST, the wider ecosystem around it is still affected by the tax. Services such as packaging, bottling, transport, advertising, and equipment purchases all fall within the GST framework. This creates a dual structure: while States tax the beverage itself, much of the surrounding value chain attracts GST.
Globally, practices vary. Countries like Australia and New Zealand include alcohol in their nationwide GST regimes, but several others follow India’s approach of treating it separately under excise duties. The balance between ensuring steady State revenues and discouraging excessive consumption continues to shape India’s policy stance.
What Changes for Consumers
With GST 2.0 scheduled to take effect on 22 September 2025, consumers will see higher prices on cigarettes, sugary drinks, and processed foods. However, liquor prices will remain dictated by State-level taxes rather than GST. The government has also clarified that alcohol meant for industrial use, unlike that packaged for consumption, will be subject to GST under the revised system.
The outcome is a hybrid model where GST rationalisation impacts many consumer products but preserves liquor as a distinct category under State taxation. This decision reflects both fiscal pragmatism and the political need to safeguard one of the most critical revenue sources for States.
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