The primary reason these items remain outside of GST is the resistance from state governments who fear significant revenue loss and the loss of fiscal autonomy.....

 Integrating key recurring costs like fuel, electricity, real estate, and alcohol into India's Goods and Services Tax (GST) framework is a complex and contentious issue. While including them could increase household savings and investment by reducing the cascading tax effect and potentially lowering costs, significant challenges, especially for state revenues, have kept these items outside the GST ambit. Bringing these high-value items under GST could lower the overall tax burden for consumers and businesses, potentially leading to increased disposable income for savings and investment. The current system taxes these items multiple times. Fuel and alcohol, for instance, have central excise duties and state-level VAT, which are levied on top of each other. Integrating them into GST would replace these multiple taxes with a single levy, reducing the final price for consumers and the cost for businesses. If applied at a lower, uniform rate, consumers would see immediate savings. For example, some estimates suggest that taxing petrol and diesel at the highest GST slab could still significantly reduce their prices. The reduction in recurring expenses like fuel and electricity, which affect both households and businesses, would free up more money for savings and investment. Lower logistics and manufacturing costs for businesses, achieved through the ability to claim input tax credit (ITC) on fuel and electricity, could spur industrial growth and make India more competitive.

The items mentioned are currently taxed outside of the GST regime. Petroleum products like petrol and diesel are a major source of revenue for both the central and state governments. The center levies an excise duty, while states impose their own Value Added Tax (VAT), leading to widely varying prices across the country. While the electricity supplied by utility companies is exempt from GST, related services like installation and maintenance attract GST. Taxes on electricity are levied by state governments. The sale of completed properties with an occupancy certificate falls outside the scope of GST. However, GST is applicable to the sale of under-construction properties. Alcoholic liquor for human consumption is constitutionally excluded from GST. State governments retain full control over its taxation through excise duties and VAT, which is a major source of their revenue. While many essential food items like fresh produce and unprocessed grains are exempt from GST, processed and packaged food items are taxed at various GST rates (e.g., 5%, 18%).

The primary reason these items remain outside of GST is the resistance from state governments who fear significant revenue loss and the loss of fiscal autonomy. Fuel and alcohol are major sources of tax revenue for state governments. Bringing them under a standardized GST would mean sharing this revenue with the central government, which states are reluctant to do. High taxes on alcohol and fuel allow both the central and state governments to manage revenues and influence consumption patterns, a power they are unwilling to cede. In the case of fuel, international crude price volatility means that central and state governments currently adjust duties separately to manage prices. Integrating fuel into a single GST rate could complicate fiscal policy. The exclusion of fuel and alcohol from GST means that businesses cannot claim input tax credit on them. This breaks the seamless credit chain, a core objective of the GST framework.

Integrating these sectors into GST could be a double-edged sword for household savings and investment, but the prevailing view suggests a net positive if managed correctly. If managed effectively, the integration of these sectors could lead to lower prices, increased disposable income, and higher household savings and investment. The potential increase in costs for some items or compliance burdens for businesses could have a negative effect, though reforms like those introduced in September 2025 aimed to address some of these issues by simplifying tax slabs. Ultimately, while the potential for increased savings and investment exists by bringing these high-cost items into GST, the political and economic challenges related to state revenues and fiscal policy remain a major hurdle.