New Delhi: The Goods and Services Tax (GST) Council, in its 56th meeting on 3 September, announced major reforms to simplify India’s indirect tax system. While several essential items have moved into lower tax slabs, beverages such as carbonated, caffeinated, and energy drinks will now attract 40 percent GST, up from the earlier 28 percent.
Why Beverages Will Cost More
Finance Minister Nirmala Sitharaman explained that carbonated fruit drinks and similar beverages were previously taxed at 28 percent plus a compensation cess. With the cess now withdrawn, the rate has been raised to 40 percent to maintain the same overall burden. The change also brings uniformity, as all non-alcoholic carbonated and caffeinated drinks are now placed in the same slab, reducing disputes over classification.
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Interestingly, while caffeinated drinks now face 40 percent GST, coffee will become cheaper, with its tax rate reduced from 18 percent to just 5 percent.
Other Beverages and Job Work
The 40 percent rate also applies to “other non-alcoholic beverages.” However, job work services in the manufacture of alcoholic liquor will continue to attract 18% GST with Input Tax Credit (ITC), instead of being moved to the reduced 5 percent rate like other job work categories.
Relief on Drinking Water
In positive news for households and institutions, drinking water supplied in 20-litre bottles will now attract only 5 pedrcent GST, down from 12 percent, making it more affordable.
Cigarettes Under “Sin Tax”
The GST on cigarettes has been raised to 40 percent, keeping them firmly in the sin goods category. This move is in line with the government’s health policy of discouraging harmful consumption.
Impact on Industry
Experts say the reforms will have a mixed impact on the FMCG sector. Companies like Hindustan Unilever, Dabur, Emami, Bikaji, and dairy firms are expected to benefit from lower rates on essentials. However, beverage companies dependent on aerated and energy drinks may take a hit, though analysts believe the hike was expected. For ITC, the impact will be largely neutral.
Big Picture: GST Rationalisation
The changes are part of a larger GST rationalisation exercise that simplifies the tax structure. The four-tier system of 5 percent, 12 percent, 18 percent, and 28 percent is being streamlined into just two slabs – 5 percent and 18 percent – with a special 40 percent rate for sin and luxury goods.
The new GST rates will come into effect from 22 September 2025.
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