New Delhi: Tax revenue for state governments in India is one of the highests from alcohol. Alcohol is being sold with restrictions, the government is spending thousands of crores annually selling liquor, and it’s raising public health warnings about the dangers of overindulgence in liquor.
However, how much does the government get in exchange for alcohol, and who should have the power to make liquor available?
How much money does the government earn?
No overall measurement exists due to the fact that liquor prices are largely controlled by state governments. Human consumption alcohol is not part of the GST system and it’s subject to the excise duty, VAT and other taxes of the particular States.
This revenue is crucial as illustrated by recent data. Around ₹57,722 crore excise revenue was been collected in state Uttar Pradesh during 2025-26, the highest in the state to date. In the similar fiscal year, Karnataka has collected around ₹41,000 crore in liquor excise revenue, while the if we discuss about Maharashtra government has collected approximately ₹34,170 crore in the similar category of revenue.
In India there are high taxes, excise duties, licences and other taxes on alcohol that generate a huge amount of revenue for state governments throughout the country. The total annual revenue generated from alcohol-related taxation is estimated to exceed ₹2 lakh crore–though this varies by year on a case-by-case basis and as to which types are included.
Alcohol is a significant issue for some states. As per Karnataka’s own government, in 2024-25, alcohol tax commanded 11.1% of the total tax revenue and 20.3% of its tax revenue.
Why is alcohol not under GST?
Alcoholic liquor for human consumption was excluded from the scope of the GST when it was implemented in 2017. The Constitution gives states the power to make laws regarding alcoholic liquor and levy excise duties on it. This allows each state to have its own liquor policy, such as tax rates, licensing requirements, retail prices and places of sale. This is also the reason why a bottle of the same whisky or beer is priced differently in different states of India.
Who approves alcohol sales?
The process begins with the State Government and the State excise department. The state sets its excise policy and establishes policy at the manufacturers, distributors, wholesalers and retailers level.
Alcohol needs to be manufactured under the right conditions and with the appropriate licences and subject to production, storage, quality, labelling and tax regulations. The retail literature also requires government licences to be able to sell liquor legally. States also have the discretion on how licences can be issued. Licences can be awarded via auctions, tenders, lotteries, renewals or alternative systems as approved by the state.
The government can also revoke or cancel licences for businesses that are in breach of rules.
Why do governments allow it despite health concerns?
It’s the big paradox in India’s alcohol policy. The state shall strive to ban intoxicating beverages, due to their detrimental influence upon health is stated in Article 47 of the constitution.
Meanwhile, states rely heavily on liquor taxes for revenue to support government spending. Several states have decided on prohibition. Others have determined that a complete prohibition is not the most appropriate course of action, but that a regulated and taxed sale is more appropriate.
Government does not ‘approve’ alcohol freely to all – in simple terms. Regulates, licenses and taxes the industry. The policy is meant to bring control over production and sales and generate revenue from the sale of an illegal product in most of India. What emerges is a system in which alcohol remains a key source of state revenues while governments debate the social and health problems associated with alcohol.
