FNB News - Dairy sector appeals for GST rationalisation on ghee and butter to 5%

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DAIRY PRODUCTS

Dairy sector appeals for GST rationalisation on ghee and butter to 5%

Tuesday, 05 August, 2025, 08 : 00 AM [IST]

Our Bureau, New Delhi

India's dairy industry has united in urging policymakers to address the glaring tax disparity that impacts ghee and butter. While essential dairy products such as milk, curd, lassi, and buttermilk are uniformly taxed at 5%, ghee and butter continue to attract a 12% GST, raising concerns about affordability, market distortions, and consumer trust.

Tax Inequality Undermines Dairy Values and Livelihoods. Affordability at Risk: Ghee and butter, deeply rooted in India’s dietary and cultural landscape, face double the GST rate of refined edible oils, making them significantly more expensive compared to lower-taxed substitutes. Adulteration and Informal Market Growth: Industry associations, including the India Dairy Association (IDA) and Amul, have highlighted that higher taxation incentivises informal and unregulated product streams, contributing to adulteration and loss of revenue.

Industry Competitiveness: Domestic dairy businesses, ranging from organised players to mid-sized operators like Nova Dairy, SMC Foods, and Paras Dairy, face margin compression or pricing pressures, losing market ground to low-cost oils taxed at just 5%. Pioneering voices from across the dairy sector, including Nova Dairy, SMC Foods, and industry operators, join tax advisory experts like Pankaj Jain of EY, alongside representatives of the India Dairy Association, in advocating for fairer GST treatment. Collectively, they are offering detailed commentary on the potential benefits of realigning ghee and butter to the lower 5% slab.

Dr R S Sodhi, president, India Dairy Association, said, “The 12% GST on ghee unfairly burdens consumers and farmers alike. It makes ghee pricier than edible oils taxed at just 5%, pushing consumers toward cheaper—and often adulterated—alternatives. Rationalising GST would boost accessibility, reduce counterfeits, and improve income flows across the dairy value chain.”

Rajender Singh, managing director, Paras Dairy, said, “A lower 5% GST on ghee and butter would make quality dairy fats more affordable, helping consumers choose authentic products. It would also level the field for organised producers and eliminate incentives for infiltration by informal, unregulated vendors.”

Sandeep Aggarwal, SMC Foods, said, “The current 12% GST on ghee and butter compresses our margins and discourages innovation. Aligning the tax rate with other staple fats would allow us to invest in fortified variants, sustainable packaging, and broader distribution—while keeping prices fair.”

Ravin Saluja, director, Sterling Agro Industries Ltd (Nova Dairy), said, “Taxing ghee—India’s cultural and nutritional heritage—at 12% makes it less competitive compared to refined oils. A shift to a 5% GST would enhance consumer affordability, drive demand for pure products, and ultimately benefit dairy farmers.”

Pankaj Jain, IDT partner, EY India GST architecture has simplified legacy taxes; however, some rate rationalisation possibilities do remain. Essential items, such as ghee and butter, continue to attract a 12% GST, while refined oils are taxed at only 5%. A data-driven rationalisation of these rates would reinforce affordability and public health without compromising revenue neutrality. It’s time to leverage GST reform to realign policy with present-day consumption realities and nutritional imperatives.

Government insiders report that the GST Council may consider eliminating the 12% slab, with items potentially shiftable into either the 5% or 18% brackets. Such changes would align ghee and butter with consumer staples and simplify rate structures for broader compliance. Key industry stakeholders are calling on the GST Council to: Reduce GST on ghee and butter from 12% to 5%, strengthening affordability for households across India. Ensure equitable treatment so that healthier, traditional dairy fats are not taxed more heavily than vegetable oils. Control adulteration by discouraging informal, unregulated supply chains and promoting formalisation for public health and farmer incomes. Enhance competitiveness, enabling brands and cooperatives to innovate and scale while maintaining affordability. India’s dairy ecosystem involves over 80 million smallholder households, with ghee accounting for nearly 25–30% of milk output. While ghee carries a 12% GST rate, the bulk of other essential dairy products, milk, curd, buttermilk, and lassi are taxed at 5% or are exempt. Reducing GST on ghee and butter would not only ease inflation impacts but also drive formal compliance and better rural incomes, according to statements by IDA leadership.