The GST Council has raised the Goods and Services Tax (GST) on carbonated beverages—including aerated, caffeinated, and sweetened drinks—from 28% to 40%, effective September 22, 2025. This marks the highest tax slab currently applied under India’s restructured GST framework, targeting sugar-laden and “sin goods” to discourage consumption and rationalize classifications
Why the Steep Tax on Soft Drinks?
- Compensating for Cess Removal
Previously, carbonated drinks were taxed at 28% GST plus a compensation cess. With the GST revamp eliminating the cess, the effective rate jumped to 40% to maintain prior tax levels - Clarity and Uniformity
The 40% rate standardizes taxation across all non-alcoholic carbonated and caffeinated drinks, reducing misclassification and ensuing disputes The Financial Express.
Broader GST Reform Context
The GST overhaul simplified the system from four slabs to just two main rates, 5% and 18%, with selected “sin and luxury goods” now taxed at 40%—including cigarettes, high-capacity cars, and carbonated beverages
These new structures aim to streamline taxation, curb consumption of harmful products, and boost long-term fairness in the tax regime
Industry Pushback
The Indian Beverage Association (IBA) and Maharashtra’s leadership have appealed for a lower GST rate—proposing 18% for low-priced or sugar-based variants—to protect affordability, especially in rural and lower-income markets
Industry Concerns:
- Demand Decline: The IBA warned the steep GST could reduce demand by up to 10%
- Tax as a Hurdle: The high effective tax—combining GST and cess—remains a bottleneck for industry growth
- Long-term Outlook: If the compensation cess is removed by 2026, the IBA hopes overall taxation falls back to 28%
What This Means for Consumers and Businesses
- Consumers: Expect higher prices for soft drinks, potentially deterring purchase frequency.
- Brands & Retailers: Marred margins and demand shifts may pressure marketing and pricing strategies.
- Government Objectives: Higher revenue and public health goals achieved via taxation. Balanced tax cuts on essentials aim to offset economic impact and boost festive spending
