In India’s latest GST reform, designed to streamline the tax system and boost consumption, a concerning development has surfaced that could derail an entire category of health-focused beverages before it even finds its footing. The government’s decision to introduce a new 40% tax slab, labelled as a “demerit” category, has extended far beyond its intended target of sugar-loaded fizzy drinks and synthetic stimulants. It now encompasses a broad range of non-alcoholic beverages, including kombucha, cold-brew teas, infused waters, and many others developed with wellness in mind. The consequences of this sweeping categorization may be far more damaging than anticipated.
For emerging brands and startups working tirelessly to create “better-for-you” alternatives to traditional beverages, this move feels like a heavy-handed penalty on innovation. Kombucha, for instance, is a fermented tea often consumed for its probiotic and gut-health benefits. It is not an indulgence nor a vice, it is consumed for its functionality, often with minimal or no added sugars, and serves as a daily wellness drink for a growing segment of mindful consumers. But by placing it in the same tax bracket as colas and high-caffeine energy drinks, the government has effectively signalled that kombucha is no different from the very drinks it was meant to replace.
This is not just a misclassification but a dangerous precedent. By branding such beverages as “demerit goods,” the policy paints the entire category with a broad, negative brushstroke. It doesn’t matter how clean the label is, how natural the ingredients are, or how little sugar the product contains. If it is sweetened, flavoured, or carbonated even mildly now falls under the punitive 40% GST regime. The message is clear: all non-alcoholic, processed beverages are guilty until proven otherwise, even if they are developed to support health and wellbeing.
Such a regime disproportionately hurts small and mid-sized players. Functional beverage startups, many of which are still in the early stages of consumer adoption and scale, will find it nearly impossible to survive with their products priced out of reach due to excessive taxation. Margins will evaporate, price competitiveness will disappear, and the very promise of a health-forward beverage economy will crumble under the weight of regulatory pressure. It is not an exaggeration to say that the kombucha industry in India may be killed before it even properly emerges.
The consequences go beyond the immediate players. This tax structure discourages investment in low-sugar, functional or fortified beverages. It disincentivizes research and product development in clean-label drinks. And it sends a confused message to consumers who are trying to make better choices for themselves and their families. Instead of encouraging a transition away from sugar-heavy mass-market options, it effectively penalizes the alternatives with the same brush by removing any financial or psychological incentive to choose healthier options.
At a broader level, this policy risks throttling India’s burgeoning non-alcoholic beverage segment just as it was beginning to diversify. The sector had only recently started to see traction in formats like kombucha, aloe vera juices, hibiscus waters, turmeric tonics, and adaptogenic teas. These are products that tap into a global movement toward preventive health, conscious hydration, and functional nutrition. But instead of nurturing this shift, the tax policy crushes it under a system that fails to acknowledge nuance.
This is where the real concern lies. By simplifying the tax code without recognising the diversity of the category, the GST Council has missed an opportunity to use taxation as a tool to guide consumer behaviour toward better health. A more progressive approach would have created distinctions based on sugar content, ingredient quality, or functional value, rewarding brands that are truly innovating for public good. Instead, the new regime treats every beverage not derived from a milk/mylk or fruit as a potential threat.
In essence, we have entered an era where a probiotic tea is treated no better than a bottle of cola. Where innovation is punished not because it fails the market, but because it fails the system’s ability to understand it. And where wellness products are taxed not based on their value, but on the outdated assumptions of what a beverage should be.
If left unchanged, this policy will not only stunt the evolution of health-focused beverages in India, it will also ensure that the next generation of good-for-you hydration startups are stillborn. They won’t just be paying higher taxes. They’ll be fighting the stigma of being labelled a “demerit good” every time they try to explain to consumers why their drink is actually good for them.
And perhaps most devastatingly, this decision risks derailing the larger non-alcoholic beverage movement in India, a movement that was finally beginning to gain cultural ground. Over the past decade, young consumers across urban and semi-urban India have embraced conscious choices over cocktails, fermented teas over fizzy drinks, and mood-enhancing, health-boosting beverages as a new social ritual. Bars began stocking adaptogen blends. Cafés evolved to offer sparkling herbal tonics. Kombucha on tap wasn’t just a trend; it was a reflection of a changing India, one that wants to drink better, not just different. By making these alternatives financially unviable, the government risks slowing a public health shift that was organic, inclusive, and aligned with global wellness currents. If the non-alcoholic revolution gets priced out before it reaches scale, India will have lost not just a market opportunity but a cultural one.