GST on milk

The Goods and Services Tax (GST) has had a significant impact on different industries in India, including the dairy sector. Milk is a staple food product consumed by millions of people, and its taxation under GST has important implications for both businesses and consumers.

Understanding the milk GST rate can help dairy farmers, suppliers, retailers, and consumers make informed financial decisions. Read on to know more about the GST rate on milk and milk products.

What is GST on milk?

Milk is widely produced and distributed across India, playing a crucial role in nutrition and food security. Any change in its taxation structure directly affects both the dairy industry and household expenses.

Since the introduction of GST in 2017, fresh milk has remained exempt; however, certain processed milk products are subject to tax. This differentiation is intended to keep essential food items affordable while ensuring revenue collection from value-added products.

GST 2.0 is implemented in Sep 2025, and milk is still exempt. But now there is a clear policy—flavored milk is a beverage under HSN 2202 and gets taxed 5% rather than the earlier 12%.

GST rate on milk, paneer and curd with HSN codes

The Harmonised System of Nomenclature (HSN) is used to classify GST on dairy products.

Branded milk and processed milk products get hit with higher rates now. GST 2.0 brings these rates up to normalize taxation and end continuous fights over product categories.

How to calculate GST on milk?

For businesses involved in dairy processing and distribution, understanding GST calculations is crucial for accurately pricing their products and complying with tax regulations. While fresh milk remains exempt, companies producing condensed or flavored milk must account for the tax implications when setting prices.

For taxable milk products, GST is calculated using the following formula:

• GST amount = (Price of the product) x (GST rate/100)

For example:

If a carton of flavored milk costs ₹100 and the GST rate is 12%, then:

• GST amount = 100 x (12/100) = ₹12

Total cost of the flavored milk = ₹100 + ₹12 = ₹112

The update GST 2.0 calculation for the above is shown below (GST rate is 5%):

• GST amount = 100 × (5 / 100) = ₹5
  Total amount= ₹105

Exemptions from GST on milk

The products that are exempt from GST on milk include the following:

• Fresh milk: Raw milk directly sourced from farms remains tax-free.
• Pasteurized milk: Processed milk that undergoes pasteurization but remains unflavored and unsweetened is also exempt from GST.
• Fortified toned milk: Milk enriched with vitamins and minerals to improve nutritional value is exempt from GST. Under GST 2.0, fortified toned milk remains exempt, and in fact, all fortified milk—skimmed, double-toned, full cream—is exempted, provided they remain unflavored and unbranded.

The exemption from GST on milk products helps maintain their affordability, benefiting both consumers and dairy farmers.

The government’s decision to exempt fresh and pasteurized milk ensures that crucial nutrition is not affected by additional taxes. This is especially helpful for those in rural areas, where milk is a primary source of sustenance.

Input tax credit claims for milk, paneer, and curd

Input Tax Credit (ITC) enables dairy businesses to claim tax paid on inputs, such as raw materials and packaging, for taxable products like paneer, curd, and processed milk. If a company pays GST on purchases used for producing these dairy items, it can deduct this amount from its total GST liability.

However, ITC cannot be claimed on exempted products, such as fresh milk, ensuring that tax benefits only apply to taxable goods. Nonetheless, there's another challenge for businesses: if you sell both exempt and taxed dairy products, GST 2.0 restricts your input tax credit unless you maintain separate records for your inputs. This is a significant shift in compliance.

Example of ITC claim

To help you understand the ITC claim, let's follow an example:

A dairy company purchases raw milk and packaging materials for ₹50,000, paying a 5% GST of ₹2,500. It then processes the milk into flavored milk, selling it for ₹80,000, with a 12% GST of ₹9,600.

The company can claim an ITC of ₹2,500, reducing its final GST liability to ₹7,100.

The above example is for the pre-GST rate. Following the implementation of GST 2.0, the rates have been revised. Let us consider the above example with the new tax rate:

In​‍​‌‍​‍‌​‍​‌‍​‍‌ case a dairy company buys certain inputs for ₹50,000 and pays 5% GST (₹2,500) and sells flavored milk for ₹80,000 with 5% GST (₹4,000):

Net GST liability = ₹4,000 – ₹2,500 = ​‍​‌‍​‍‌​‍​‌‍​‍‌₹1,500.

Impact of GST on the dairy industry

• Positive:
• Streamlined tax compliance for dairy businesses, making tax filing transparent.
• Exemption of fresh and pasteurized milk keeps prices stable for consumers and supports small dairy farmers.
• The ITC benefits businesses involved in processed dairy production by allowing them to claim tax paid on inputs.

• Negative:
• Tax on condensed and flavored milk increases prices for consumers, reducing demand for these products.
• Dairy farmers and cooperatives producing taxable milk products must comply with GST regulations, which can be particularly challenging for smaller enterprises.
• The increased tax burden on processed milk products could discourage innovation and investment in value-added dairy products.
• With the introduction of GST 2.0, processed milk items, previously taxed at 12–18%, will most likely become cheaper on the shelves. Small dairies, particularly, will have more paperwork to do—they'll have to keep their inputs separate to claim ITC.

Evolution of GST regulations on milk products

The government periodically reviews GST rates in response to economic conditions and sectoral demands. The exemption for fortified toned milk is an example of how policies evolve to align with public health goals.

Key changes include:

Fortified Toned Milk

Fortified toned milk is exempt from GST to promote affordable nutrition. This helps make essential nutrients accessible, especially for low-income households.

By keeping it tax-free, the government encourages consumption of healthier dairy options, supporting public health goals without adding any financial burden on consumers.

Milk Powder

Milk powder attracts a 5% GST, making it slightly costlier for consumers and manufacturers. Though still relatively affordable, the tax affects pricing for packaged dairy and processed foods.

This GST imposition balances revenue generation while maintaining reasonable access to a widely used, shelf-stable dairy product.

Khoya (Mawa)

Khoya, also known as mawa, is taxed at 5% GST. As a traditional milk concentrate used in sweets and desserts, this taxation marginally raises production costs for sweet makers.

However, the modest rate ensures continued availability without severely impacting traditional culinary practices or consumer affordability.

Also Read: Changes in GST Rates: How Does It Impact You

Comparison of GST on milk across different countries

Conclusion

Milk, being a necessity, remains exempt mainly from GST, ensuring affordability for the masses. However, processed milk products, such as flavored and condensed milk, attract GST rates of 5%, while milk powder is taxed at 5%. These regulations impact the dairy industry by striking a balance between tax revenue generation and consumer affordability. The GST system simplifies tax compliance for businesses but also imposes costs on value-added dairy products. Understanding GST on milk helps businesses and consumers make informed decisions.

For small dairy farmers, the exemption of fresh and pasteurized milk is beneficial as it reduces their tax burden. However, for larger dairy processors dealing with flavored and condensed milk, GST increases production costs and affects consumer demand. The future of GST on milk will likely depend on policy adjustments aimed at ensuring fair taxation while maintaining access to essential nutrition for all.

The aim of the introduction of GST 2.0 is to keep plain milk cheap, but make taxation in the broader dairy industry clearer and more standardised. Less bickering, greater transparency. That's the intention.

These days, some financial institutions like Axis Bank support post-GST business operations through the GST-based Overdraft Scheme. This funding option enables MSMEs to manage their working capital effectively using GST return data. Key benefits include loans ranging from ₹10 lakhs to ₹150 lakhs. Other features include interest payable only on the utilised amounts, and a 12-month renewal cycle commencing from the date of the first drawdown.

Frequently Asked Questions

What is the applicability of GST on milk powder?

Milk powder is subject to GST at 5% under HSN code 0402. This applies to all types, including skimmed and whole milk powder. However, unprocessed milk remains exempt. The GST aims to streamline taxation while keeping essential goods and services relatively affordable for consumers.

Are all types of milk exempt from GST?

No, only fresh, unprocessed, and pasteurized milk is exempt from GST. Processed dairy products, such as flavored milk (5%), condensed milk (5%), and milk powder (5%), are subject to GST. The tax varies based on the processing and the added value in milk products.

Is GST applicable to ghee and butter?

Yes, both ghee and butter attract GST at 12% under HSN code 0405. Since they are processed dairy products, they are subject to taxation, unlike fresh milk, which is exempt. This taxation applies to all packaged and branded varieties of ghee and butter.

Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.

Tax and GST regulations are subject to change. The information in this article is based on applicable laws, rules, notifications, and interpretations in force as on the date of publication and may change due to amendments, judicial decisions, or regulatory updates.