Thiruvananthapuram: The UDF government has proposed a new tax structure for low-alcohol beverages produced in Kerala in its first budget, while excluding liquor-related dues from a newly announced tax arrear waiver scheme.

Presenting the Budget in the Assembly on Friday, Chief Minister and Finance Minister V D Satheesan said the government is formalising the taxation framework for low-strength alcoholic beverages following amendments to foreign liquor regulations originally drafted under the 2022-23 Abkari policy.

The government had earlier amended foreign liquor rules to permit the manufacture of low-alcohol beverages using agricultural produce, fruits and grains sourced from within the state. The Budget now introduces separate sales tax structures under the Kerala General Sales Tax Act, 1963, for low-alcohol beverages containing between 0.5 per cent and 20 per cent alcohol by volume (v/v), excluding beer and wine.

Under the new structure, products containing more than 0.5 per cent and up to 10 per cent alcohol by volume will attract a sales tax rate of 120 per cent. Beverages containing more than 10 per cent and up to 20 per cent alcohol by volume will be subject to a sales tax rate of 175 per cent.

The Budget also announced a Small Arrear Waiver Scheme, 2026, aimed at settling pending pre-GST tax disputes. The scheme provides for a full waiver of tax arrears, interest and penalties in eligible cases where the tax amount does not exceed ₹50,000, and for certain categories of arrears up to ₹2 lakh arising from assessment orders issued on or before March 31, 2025.

However, the government has specifically excluded tax arrears related to liquor sales under the Kerala General Sales Tax Act, 1963, from the benefits of the waiver scheme. Outstanding dues linked to liquor sales will therefore remain payable and will not qualify for relief under the amnesty programme.