What’s new: Excise duty replaces GST cess on tobacco and related products
- On 3 December 2025, the Lok Sabha approved the Central Excise (Amendment) Bill, 2025. The law will impose a central excise duty on a range of tobacco products — such as cigarettes, cigars, chewing tobacco, zarda, hookah tobacco — replacing the existing GST compensation cess.
- The bill forms part of a broader fiscal strategy to ensure that tax incidence on “sin goods” remains steady even after the cess ends.
What the bill proposes: New rates and tax structure
- Under the new law, excise duty on manufactured tobacco products — including cigarettes, cigars, cheroots — will vary based on specifications. For cigarettes, the duty will range from ₹5,000 to ₹11,000 per 1,000 sticks, depending on length and filter status.
- For unmanufactured tobacco, the duty is set at 60–70%, while certain nicotine inhalation or vaping-related products may face duty up to 100%.
- These excise duties will apply in addition to the existing 40% GST, keeping the total tax burden equal to or higher than current levels under the cess.
Government’s reasoning & implementation plan
- Finance Minister Nirmala Sitharaman said the bill ensures that once loans taken to compensate states under the earlier GST mechanism are settled, the Centre can still levy taxes on tobacco products. Without this, the tax incidence would significantly drop after the cess phase-out.
- The move is not a shift to a new tax regime but essentially a restoration of the earlier excise-based structure.
What this means: Impact on tobacco users, economy, and public health
- Prices of cigarettes, bidis, chewing tobacco, and similar products are expected to rise, making them less affordable and potentially reducing consumption.
- Maintaining a high tax burden aligns with public-health goals, as tobacco use is tied to significant health risks.
- For the government, continued revenue from sin goods supports fiscal stability once the GST cess revenue stream ends.
