Cigarettes, Tobacco Products To Become Costlier From 1 February
The new excise duty on cigarettes will range from ₹2,050 to ₹8,500 per 1,000 sticks, depending on their length.
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From 1 February 2026, cigarettes and tobacco products in India will become more expensive as the government implements a new tax regime. The revised structure includes higher excise duties and an increased Goods and Services Tax (GST) rate, replacing the previous compensation cess system. The changes are expected to impact both manufacturers and consumers, with price hikes anticipated across various tobacco products.
According to The Hindu, the Ministry of Finance has issued notifications to bring the Central Excise (Amendment) Act, 2025, and the Health Security se National Security Act, 2025, into effect from 1 February 2026. These acts introduce new excise duty rates for tobacco products and a dedicated cess on pan masala, marking a significant shift in the taxation framework for these goods.
As reported by Hindustan Times, the new excise duty on cigarettes will range from ₹2,050 to ₹8,500 per 1,000 sticks, depending on the length of the cigarette. This duty is in addition to a 40 percent GST rate, replacing the earlier compensation cess. The government has also introduced a capacity-based levy system for certain tobacco products, requiring manufacturers to install surveillance systems to ensure compliance.
As highlighted by The Indian Express, the price of cigarettes is expected to rise by 15 percent to 40 percent from February 2026, with industry estimates suggesting an increase in additional levies of 20-30 percent. The new structure comprises a 40 percent GST, the revised central excise duty, and the existing National Calamity Contingent Duty (NCCD). The government has justified the hike by noting that the affordability of cigarettes has not decreased in the past decade, and the new rates align with global public health recommendations.
“The GST Council decided to increase the GST rate on pan masala from 28 percent to the statutory ceiling of 40 percent, and therefore the remaining portion of the existing tax burden is being shifted to the machine-based cess under the Health Security se National Security Cess Bill, 2025. The calibrated rates under the cess ensure that the combined incidence of GST and the new cess remains broadly equivalent to the current incidence of GST plus compensation cess,” a Finance Ministry official said.
This report noted, the GST compensation cess, which was originally introduced to offset state revenue losses from GST implementation, will cease from 1 February 2026. The new excise and cess regime is intended to provide a predictable revenue stream for health and national security initiatives, without increasing the general tax burden on the population.
The revised tax rates will also affect other tobacco products. As this report noted, gutkha will face a 91 percent excise duty, chewing tobacco and jarda scented tobacco will be taxed at 82 percent, and smoking mixtures for pipes and cigarettes will attract a 279 percent duty. Pan masala will be subject to a 40 percent GST and a 48 percent Health Security se National Security Cess.
The government has also notified new rules for determining the GST value of tobacco products based on the maximum retail price declared on packaging. This article added, the new levies will replace the compensation cess and are expected to have a significant impact on the pricing and regulation of tobacco and related products.
“A taxation framework that keeps cigarettes ‘sufficiently expensive’ is one of the most effective tools to discourage tobacco use and limit its impact,” the finance ministry said in a statement.
Stock prices of major cigarette companies, including ITC and Godfrey Phillips India, declined sharply following the announcement of the new duties. This report highlighted, the industry has expressed concerns about the potential for increased illicit trade due to higher taxes, as legal cigarettes already constitute a small share of total tobacco consumption but contribute a significant portion of tax revenue.
Note: This article is produced using AI-assisted tools and is based on publicly available information. It has been reviewed by The Quint's editorial team before publishing.