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Informist, Thursday, Dec. 4, 2025

 

--Sitharaman: Health, national cess to not impact GST collections 
--Sitharaman:Health, national cess will not be imposed on any essential item 
--CONTEXT: Sitharaman speaks in Lok Sabha on health, national security bill 
--Sitharaman: To share health, national cess with states for health plans 

 

NEW DELHI – Finance Minister Nirmala Sitharaman Thursday said that the central government will share part of the collection from the proposed 'Health Security Se National Security Cess' with states. This is a special case and is in contrast to how cess is treated in fiscal arrangement. Cess is outside the divisible pool of taxes. Sitharaman said that considering the cess will be collected as a general welfare measure, it will be shared with states in the form of payout for states' health schemes. 

 

In her remarks on the Health Security Se National Security Cess Bill, 2025, in the Lok Sabha, Sitharaman said that pan masala production was not "excise-able" which is why it could not be covered under The Central Excise (Amendment) Bill, 2025, passed Wednesday. Collections from excise duty are shared with states and, hence, the same treatment would be extended to this particular cess collection, she said.

 

By amending the Central Excise Act, 1944, the government will levy excise duty of INR 2,700 to INR 11,000 per 1,000 sticks of various categories of cigarettes. The Bill also allowed a levy of 60-70% on every kilogram of tobacco used for various purposes and 100% on chewing tobacco. The cess bill, however, is not to impose additional tax on end-use products, but on the machinery and production capacity of units, Sitharaman said. It will be calculated per machine installed or per unit of manual production.

 

For machine-based production, the cess will be based on the maximum rated speed of each machine and the weight of the product packed in each pouch or container. For example, cess will be INR 10.1 million per month per machine for maximum rated speed up to 500 pouches per minute and each pouch weighing up to 2.5 grams, the bill said.

 

Sitharaman clarified that cess will be imposed on pan masala production to only deter the consumption of the demerit product and its like, and will not be imposed on any essential item. She also said that since the cess will be imposed over and above the 40% GST rate, it will not lead to any impact on GST collections, especially as the compensation cess will be discontinued. 

 

The government brought these two bills to replace the compensation cess under the Goods and Services Tax regime. 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 in loans taken by the Centre to partly bridge the revenue shortfall of states during the COVID-19 pandemic.

 

On Sept. 3, the GST Council overhauled 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 with the compensation cess on tobacco-related products till the GST-related loans were repaid. The government had said that the overall tax incidence on such sin items would not be allowed to come down in the post-compensation cess era.  End

 

Reported by Priyasmita Dutta

Edited by Avishek Dutta

 

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