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Informist, Thursday, Jan. 1, 2026

 

NEW DELHI – The government has imposed excise duty on cigarettes in the range of INR 2,050-INR 8,500 per thousand sticks based on the length and type of the product, effective from Feb. 1, the finance ministry said in a notification late Wednesday. In a separate notification, the ministry also notified that goods and service tax compensation cess levy on tobacco and related products would be discontinued from Feb. 1.

 

The excise duty on cigarette would be imposed over and above the 40% goods and services tax, the ministry said. 

 

This comes after the Parliament passed the Central Excise (Amendment) Bill, 2025 earlier this month, making way for the revised excise duty on tobacco products such as cigarettes, cigars and chewing tobacco. The new duty structure on these items ensures that the overall tax incidence on such sin items does not come down in the post-compensation era. 

 

The GST Council had on Sept. 3 agreed to overhaul the indirect tax structure by slashing rates on a host of common and daily-use items. The council also introduced a new GST rate of 40% on luxury goods to subsume the GST compensation cess that some of the items in the 28% GST bracket attracted. However, the council decided to continue the compensation cess on tobacco-related products till the GST-related loans are repaid. 

 

The GST compensation cess was introduced to bring states on board to adopt the GST regime in 2017. The Centre had promised to protect 14% revenue growth for states for the first five years by levying a compensation cess on certain luxury goods, including motor vehicles, expensive motorcycles, caffeinated beverages, and sin goods such as tobacco items and pan masala. Initially set to expire in June 2022, the cess was extended until March 2026 to repay INR 2.69 trillion loans taken by the Centre to partly bridge the revenue shortfall of states during the COVID-19 pandemic.  End

 

Reported by Priyasmita Dutta

Edited by Avishek Dutta

 

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