Karnataka introduces India’s first alcohol-based excise duty system for liquor taxation

INDIA – The Government of Karnataka has introduced a new Alcohol-in-Beverage (AIB)-based excise duty structure, becoming the first state in India to implement a liquor taxation system based on the actual alcohol content in alcoholic beverages. 

The revised policy came into effect on May 11 following its announcement in the 2026-27 state budget by Siddaramaiah. 

According to the State Excise Department, the new framework is designed to rationalise liquor taxation, improve pricing transparency and align Karnataka’s alcohol prices more closely with neighbouring states, including Tamil Nadu, Andhra Pradesh, Telangana, Maharashtra and Kerala. 

“For the first time in India, the AIB-based excise duty structure has been implemented in Karnataka from May 11, 2026. It is globally recognised as the gold standard for alcohol taxation,” the department said in a statement. 

Under the revised structure, excise duty will now be calculated according to the quantity of pure alcohol contained in a product rather than fixed product categories. Officials said the model introduces a more scientific taxation mechanism while improving transparency across the sector. 

The government has also deregulated the liquor price fixation process, allowing manufacturers to determine product positioning within tax slabs based on market demand and pricing strategies. 

As part of the reforms, the number of Indian Made Liquor (IML) slabs has been reduced from 16 to eight in an effort to simplify the taxation structure. 

State officials said the changes are expected to improve tax efficiency, minimise pricing distortions and discourage consumers from purchasing alcohol from neighbouring states with lower retail prices. 

During the March budget presentation, Siddaramaiah described the AIB system as a globally recognised taxation model that directly targets alcohol content, which he called “the primary source of negative externalities.” 

The Karnataka government has set a revenue target of Rs 45,000 crore for the excise sector during the 2026-27 financial year. 

Under the new framework, revised maximum retail prices will apply to products manufactured after May 11. The excise department also instructed the publication of updated liquor and beer prices, including revised pack sizes, in major Kannada and English newspapers across the state. 

The revised taxation rates apply to multiple Indian Made Liquor and beer brands, with pricing varying according to alcohol percentage, pack size and slab classification under the new AIB-based excise duty structure. 

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