GST on Alcohol — Rates, Rules & Exemptions Explained

It's Friday evening, and Arjun goes to his local liquor store in Bengaluru. A bottle of whisky priced at ₹1,000 on the shelf costs ₹1,800 at the counter.

Surprised, he thinks, "How did ₹800 extra get added?" The shopkeeper clarifies: "That's excise duty, VAT, you know, state taxes. "There is no GST on alcohol!"

This prompted Arjun's curiosity: Why is alcohol exempt from GST? What exactly constitutes the ₹800 extra? How does this complex tax system affect prices among states?

This blog offers clarity by covering:

• Why was alcohol kept out of GST?
   
• State-level taxes (excise, VAT, cess, and fees)
   
• Comparing tax structures amongst states.
   
• Impact on consumers and the industry

No GST on Alcohol: A Constitutional Decision

Alcohol for human use is not subject to GST, as stated in Article 366(12A) of the Constitution.

This means:

• Alcohol cannot be taxed by the Centre or the GST Council.
   
• Powers remain with states, under Entry 54 and Entry 51; State List

In practice, alcohol is taxed as:

• Excise duty during the manufacturing/import stage
   
• VAT or sales tax in retail
   
• License and permit fees

A 2023 CNBC-TV18 report reinforced the GST Council's view that alcohol cannot be taxed as it falls within state jurisdiction.

Why Exclude Alcohol from GST?

State administrations resisted putting alcohol in the GST for two main reasons: 

• Revenue Dependency

Alcohol generates approximately ₹90,000 crore in revenue for the state annually.  Under GST, states feared losing sovereignty and money.

• Regulatory and Social Control

High state taxes help to limit consumption. States believed that reduced GST rates would promote alcohol consumption.

What Taxes Determine the Final Price of Alcohol?

Here’s a breakdown of typical state-level taxes on a ₹1,000 whisky bottle:
 

This final price is 3x–4x the ex-factory cost!

What taxes contribute to the final alcohol price?

Since GST is not included, the pricing components before they reach the consumer are:

1. Ex-factory prices are set by the manufacturer.
    
2. State excise duty is calculated as a percentage or per-litre markup.
    
3. Wholesale margin added by the distributor
    
4. State VAT/sales tax is applied on the cumulative value.
    
5. Retail margin - the shopkeeper's profit markup.
    
6. Licence and permit fees are statutory state costs

The accumulated tax amounts to 200-400% of the manufacturing price.

Understanding Price Variations by State: 

Maharashtra and Karnataka

• Excise duty: 25-50% of ex-factory pricing.
   
• VAT: 20-30% of gross value.
   
• Final pricing: around 250-300% of the manufacturing price.

Kerala, Punjab, and Haryana

• State-run establishments handling sales.
   
• Profits + duty = around 200-250% of the base price.
   
• Alcohol accounts for around 16% of Kerala's earnings.
   

Goa, Delhi, and Himachal Pradesh (Lower taxes)

• Goa has much lower taxes (VAT ~12%, excise ~30%).
   
• Influences shoppers in surrounding states to shop there.
   

Input Taxes: Is Extra Neutral Alcohol (ENA) Taxed?

ENA used in the production of spirits may be subject to 18% GST, while the finished spirits are not, creating doubt about input tax credits.

At the GST Council's 43rd meeting, and after the Allahabad High Court orders, the Ministry of Finance agreed to exempt ENA from GST on November 1, 2024. ENA no longer requires GST for human consumption, making compliance easier.

ENA no longer requires GST for human consumption, making compliance easier.

Who ends up paying what?

• Manufacturers pay excise and other state charges.
   
• Distributor: Adds margin and pays VAT.
   
• Retailer: Increases retail margin and recovers fees.
   
• Consumer pays the total—there is no GST or ITC involved.
   
• This stacking price structure raises the cost at each tier.
   

Why Do We Have This Tax Structure?

1. State Revenue Protection:
    

• Alcohol generates approximately ₹90,000 crore in annual state income.
• Taxpayers fear losing sovereignty and cash if alcohol is moved to GST.

2. Regulatory Control.

• Higher taxes discourage consumption.
• States can manage pricing based on local objectives.

3. Public Health Measurements

High alcohol tariffs are widely recognised as effective public health measures to decrease alcohol-related harm.

Example:
 

Note: Rates vary significantly across states.

Conclusion

According to the constitution, alcohol is exempt from GST.  Prices are generally 3-4 times more than the ex-factory pricing due to a complex combination of state excise, VAT, licence fees, and profits. The current clarification on ENA exemption from GST (November 2024) simplifies operations. Nonetheless, alcohol taxation is a state-driven, sophisticated, and strategically leveraged system for both revenue collection and public health policy.

FAQs

Why doesn't GST apply to alcohol?

Article 366(12A) exempts alcoholic beverages for personal consumption from GST.

What taxes apply to alcohol?

State excise, VAT/sales tax, licensing, and permit fees are collected in several steps from the plant to the retail location.

Is GST paid on ENA?

Since November 2024, alcohol used for human consumption has been exempted from GST.

Do producers receive GST credits?

Yes, on inputs (ENA and packing) through November 2024. ENA is now exempt, and benefits will apply appropriately.

Could alcohol fall under GST in the future?

Unlikely, states rely on the spirits tax, and constitutional constraints are in place.