GST on Beverages 2025: Why Cold Drinks and Energy Drinks Will Now Attract 40% Tax?

The GST Council, in its 56th meeting on 3 September 2025, announced a higher 40% GST rate on carbonated fruit drinks, energy drinks, and caffeinated beverages.

Finance Minister Nirmala Sitharaman explained that these drinks were earlier taxed at 28% plus a compensation cess. With the cess withdrawn, the GST rate has been revised to 40% to keep the overall tax burden unchanged.

This move ensures uniformity in classification and avoids disputes over whether a product falls under fruit-based, aerated, or caffeinated categories.

What Is the New GST Rate on Coffee in India?

In a major relief for consumers, GST on coffee has been reduced from 18% to 5%.

This is expected to lower costs for households, cafes, restaurants, and small businesses, giving a boost to the domestic coffee industry and benefiting daily consumers.

Will 20-Litre Packaged Drinking Water Become Cheaper?

Yes. Packaged drinking water in 20-litre bottles will now be taxed at 5% GST, down from the earlier 12%.

This rate cut is expected to provide relief to:

Households that regularly purchase large water cans.

Schools, offices, and institutions dependent on bulk water supply.

The move directly reduces daily essential costs for urban and rural consumers alike.

Which Other Beverages Are Impacted by the 40% Slab?

Apart from cold drinks and energy beverages, the 40% GST slab also applies to:

• Carbonated fruit juices
• Flavored aerated water
• Non-alcoholic caffeinated drinks

This ensures all such beverages are taxed uniformly, removing ambiguity and potential misuse of lower slabs.

What About Cigarettes and Other Sin Goods?

The GST Council also confirmed that cigarettes will continue to attract 40% GST, keeping them under the sin goods category.

This aligns with the government's public health policy to discourage harmful consumption while ensuring consistent revenue collection.

How Will These GST Changes Impact FMCG Companies?

Negative impact: Beverage companies relying on aerated and energy drinks may face a sales slowdown due to higher prices.

Positive impact: FMCG firms like Hindustan Unilever, Dabur, GCPL, Emami, Bikaji and dairy players are expected to benefit from reduced GST on essentials.

Neutral impact: Companies with diverse portfolios (like ITC) may see a balanced effect.

What Does This Mean for Consumers?

Cheaper: Coffee and packaged drinking water (20-litre bottles).

Costlier: Cold drinks, caffeinated beverages, and energy drinks.

Unaffected: Alcoholic beverages remain under state excise; cigarettes continue at 40%.

Overall, the latest GST reforms ease daily essentials while placing higher taxes on discretionary or unhealthy consumption.