An additional excise duty on cigarettes and tobacco products, along with a health and national security cess on pan masala, will come into force from February 1, replacing the existing GST compensation cess mechanism on these products.
Under the new regime, the current structure of 28 percent GST plus compensation cess on so-called sin goods will be discontinued.
Instead, these products will be taxed at the highest GST rate of 40 percent along with fresh excise duties and cess.
The changes were approved by Parliament in December and follow a decision taken by the GST Council in September 2025, after the end of the compensation cess used to repay loans taken during the Covid period.
The Central Excise Act has been amended to levy excise duty on cigarettes ranging from Rs 2.05 to Rs 8.50 per stick, depending on length. Short non-filter cigarettes up to 65 mm will attract about Rs 2.05 per stick, while short filter cigarettes will face around Rs 2.10. Medium-length cigarettes will be taxed at roughly Rs 3.6 to Rs 4 per stick, and long premium cigarettes at about Rs 5.4 per stick. The highest slab of Rs 8.50 applies only to non-standard designs.
Chewing tobacco will attract an excise duty of 82 percent, while jarda scented tobacco and gutkha will face a duty of 91 percent. A new MRP-based valuation system will also be introduced for tobacco products.
Pan masala manufacturers will be required to obtain new registrations, install CCTV systems covering packing machines, and disclose machine details to excise authorities. Despite the new levies, the total tax incidence on pan masala will remain at 88 percent.
Crisil Ratings has projected a 6 to 8 percent contraction in cigarette volumes next fiscal due to the higher duties. The Centre said proceeds from the levies will be shared with states and used for health and national security priorities.