written by | March 21, 2022

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Table of content


Table of content

Does Liquor Attract GST in India and What Are Its Implications?

Alcohol is consumed in large quantities in India. The state of Kerala leads the list of maximum alcohol consumption as Andhra Pradesh, Telangana, Kerala, Karnataka, and Tamil Nadu account for 45% of total alcohol consumption. Globalisation coupled with urbanisation has brought about a change in the lifestyles of individuals with the alcohol industry in India, growing at a compound annual growth rate of almost 8.8%. The Indian alcohol industry is divided into two separate entities: - Indian made (domestically produced) Indian liquor (IMIL) and Indian made foreign liquor (IMFL). Though alcohol is exempted from GST, the import duties levied and the taxes have increased the final price of imported liquor. Whiskey, wine, and vodka are some of the beverages consumed in large quantities.

In comparison to its western counterparts as well as other countries, the per capita liquor intake of India is low. However, the trend is shifting upward at a slow rate. 

The taxation on liquor varies across the states of India. For instance, the sale of alcohol has been prohibited in Gujarat since 1961. The state of Uttar Pradesh enjoys the maximum amount of revenues that accrue from the excise tax imposed on liquor.

Did you know?

Among all global whiskey lovers, Indians hold the record for the maximum whiskey consumption. There are thirteen (13) minerals required for human life, and all these are available in alcohol!

Which Category of Liquor Attracts GST?

Every type of liquor that is suitable for consumption is free of GST. However, in India, despite no liquor tax in India, the earlier tax on alcohol in India continues to prevail. 

Also Read: GST on Medicines and Pharma – Applicability, Rates & Exemptions

Some of These Include

  1. Excise Duty - Also referred to as the Central Value Added Tax, is imposed on products manufactured or produced within a country.
  2. Value Added Tax - VAT, as it is commonly called, is an indirect tax imposed on products and services throughout the cycle of production and distribution. It is imposed right from the procurement point of raw materials until the finished product becomes commercially available for the end-user.

Below is a table that gives details of the types of alcohol that are liable to pay GST. These products are not meant for consumption. They are used in industries, which calls for imposing a GST on alcohol. 

Harmonised System of Nomenclature – HSN code

Type of Alcohol

GST rate applicable

2207

Denatured alcohol, hard drinks, ethyl alcohol

18%

As above

Ethyl alcohol that is supplied to marketing companies dealing in oil, where they blend the ethyl alcohol with the motor spirits

5%                                                   

Reasons for No Tax on Alcohol in India Are as Follows

  1. Alcohol contributes towards an attractive amount of revenues towards the state governments. The approximate amount of such revenues on an annual basis is about ₹ 90,000 crores.
  2. They maintain high prices to curtail excessive drinking by individuals.

Also Read: Positive Impact of GST on the Real Estate Sector

What Is the Impact of Levying GST on Liquor?

Below are some of the resultant impacts:

  •  The Central government refrains from imposing a tax on liquor specifically for consumption. A state government imposes taxes on the same. The diverse liquor producers argue that such taxes reduce their profits in a big way.
  • Though there is no GST on liquor in India, the raw materials and other overhead costs are taxed. Some of these include barley, denatured alcohol, molasses, and glass bottles. The tax rate on these varies between 18 and 28%. It impacts the producers of liquor who have to bear the taxes. Again, if the producers increase the prices, it will likely affect their sales and turnover. Before the GST Act was established, transport costs and freight involved a 15% service tax. After the GST Act, this has increased by an additional 3%. So while there have been no glaring changes in VAT charged, these categories of beverages have seen an increase in the sale price.
  • Reduced profits is a key concern for most producers of alcohol. It occurs when inferior quality brands flood the markets. It lures consumers who avoid the quality brands which are priced steeply.
  • State governments continue to bear the brunt of decreasing profits.
  • Quality liquor becomes unaffordable for consumers, and they try to experiment with cheaper brands which may have serious repercussions on their health. 

It is important to note that the only relief offered to liquor producers is the usage of second-hand bottles as they attract a reduced VAT rate. However, if the GST authorities impose a full tax rate on such bottles, the total amount of tax would increase from the prevailing 5% to anywhere between 12 and 18%.

Conclusion

The alcohol industry has not welcomed the Central Government’s decision of exempting liquor from GST. The details of this article clearly explain the reasons - the most important being the additional taxes on the materials involved in producing the liquor. Even if companies are eligible for a refund of the collective input tax credit, it takes very long to avail it and extend the working capital cycle. Beer includes only around 5% alcohol content, and producers of this beverage have stated that GST should be applicable as it would bring in more revenues considering India's growing tourist industry. All liquor manufacturers believe that if GST is imposed on liquor, the prices across the country will be uniform. Most importantly, the liquor industry will stand to make handsome revenues. However, every state views this differently as the liquor business accounts for massive revenues. Do you have issues with payment management and GST? Install the Khatabook app, a friend-in-need and one-stop solution for all issues related to income-tax or GST filing, employee management and more. Try it today!

FAQs

Q: Which Indian state has the least tax rate imposed on liquor?

Ans:

The state of Goa has the most nominal tax rate on liquor. It has led to a phenomenal increase in its tourism sector, resulting in attractive revenues for the state.

Q: Which state in India has the maximum liquor sales tax?

Ans:

The state of Kerala has the maximum sales tax on liquor.

Q: Which Indian states earn the most revenue through the trade of alcohol?

Ans:

The UT of Puducherry earns a large amount of money from the liquor trade. Kerala and Tamil Nadu also raise a lot of their revenue through the sale of alcohol.

Q: Is GST applied to the beverage of beer in India?

Ans:

There is no GST imposed on beer or on any alcohol meant for consumption.

Q: What is the GST rate on alcohol?

Ans:

Alcohol which is not meant for consumption but utilised in industries, attracts an 18% GST tax.

Q: What is the GST rate on Whisky?

Ans:

The GST rate on whisky is 28%.

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