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When GST was introduced from July 2017, the Union Government had surrendered its power to levy tax (excise duty) on tobacco and tobacco products to enable the collection of compensation cess during the initial five years of GST. This right was ceded to the GST Council so that compensation cess could be levied and collected on items taxed @28%. This cess was collected from 2017 to 2022 and also transferred to the states as per agreed formula. What was conceded by Union in 2017 has been reverted back to it on cess going away. In fact, pre-GST rates of duties were higher but in GST era, while excise duty remained minimal, compensation cess did played a role in revenue collection.
The Act will also not harm tobacco farmers and beedi workers. There are many schemes, including crop diversification scheme, to take care of tobacco farmers, to encourage them to move to other crops from tobacco. More than 1.12 acres of land have been shifted to other crops from tobacco cultivation to other crops between 2017-18 to 2021-22. There are 49.82 lakh registered beedi workers in the country and labour welfare welfare schemes are being implemented across the country through labour welfare organisations.
The Central Excise (Amendment) Act, 2025 contains only one major amendment, i.e., Table occurring under ‘supplementary notes’ in the fourth schedule in Section IV has been substituted which shall be made effective from a notified date.
While the Excise Amendment Act replaces the existing Tariff table for tobacco and tobacco products, it brings one of the steepest hikes in tobacco taxation in many years. This implies rise in excise rates from 60% to 70% and cigarette duties go up sharply from Rs. 200- Rs. 545 per 1000 sticks to Rs. 2700 – Rs. 11000 per 1000 sticks depending on length and filter type. In case of chewing tobacco, zarda etc., hike is more steeper from 25% to 100% with 60% to 325% hike in smoking mixtures. Thus, the new duties would ensure that taxes on sin items do not come down in post cess era.
It has been clarified that the levy is of excise duty on tobacco products and not a new cess. Further, it is not an additional tax or something which the centre is taking away. It is an excise duty that also existed before levy of GST and the amount of duty collected shall be redistributed to the states as per the recommendations of the Finance Commission. Excise duty is being imposed to ensure that incidence of tax is not lower than what it was during GST regime with compensation cess. In other words, Central Government intends to see that cigarettes and tobacco products are not made more affordable due to cess abolishment. It may be noted that in pre-GST regime, tax rates on tobacco goods used to be increased every year. In GST era, cess rates have remained constant so far.
CBIC has notified 01.02.2026 as the date from which provisions of Central Excise (Amendment) Act, 2025 shall come into force.It has brought chewing tobacco, jarda scented tobacco and gutkha manufactured using packing machines under a special excise duty regime as notified goods under Section 3A of the Central Excise Act, 1944. This move marks the return of a capacity-based taxation system, where duty will be levied and collected based on the number and speed of packing machines installed in a factory, rather than actual production. It has also notified the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026, which will also take effect from February 1, 2026.
GST rates on tobacco and tobacco products w.e.f. 01.02.2026 [Amendment to Notification No. 09/2025-CT (R) dated 17.09.2025]
The Central Government on the recommendation of the GST council, has amended the Notification No. 09/2025-CT (R) dated 17th Sep 2025videNotification No. 19/2025- CT (Rate) dated 31st Dec 2025, thereby inserting certain new entries in the said Notification, which are as follows:
1. In Schedule II, which prescribes a GST rate of 9% in respect of goods specified therein, after S. No. 4 and the entries relating thereto, a new entry No. 4A shall be inserted, as follows:
S. No. | Chapter/Heading | Description of goods |
4A | 2403 19 21, 2403 19 29 | Biris |
2. In Schedule III, which prescribes a GST rate of 20% in respect of goods specified therein, after S. No. 13 and the entries relating thereto, the following serial numbers and entries shall be inserted, namely:
S. No. | Chapter/Heading | Description of goods |
14 | 2106 90 20 | Pan masala |
15 | 2401 | Unmanufactured tobacco; tobacco refuse [other than tobacco leaves] |
16 | 2402 | Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes |
17 | 2403 (other than 2403 19 21, 2403 19 29) | Other manufactured tobacco and manufactured tobacco substitutes; homogenised or reconstituted tobacco; tobacco extracts and essences [other than biris] |
18 | 2404 11 00 | Products containing tobacco or reconstituted tobacco and intended for inhalation without combustion |
19 | 2404 19 00 | Products containing tobacco or nicotine substitutes and intended for inhalation without combustion |
3. Further, Schedule VII, which prescribes a GST rate of 14% in respect of goods specified therein, has been omitted.
It is worth noting that more than 80 countries revise tobacco taxes annually using inflation indexing or multi-year schedules, viz, Australia, New Zealand, Philippines, Turkey and South Africa. India also used to raise tobacco taxes annually before GST and the country’s tax incidence on cigarettes is around 53 percent, well below the WHO benchmark of 75 percent.