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Informist, Thursday, Dec. 4, 2025

 

NEW DELHI – Parliament on Thursday gave its nod to the revised excise duty on tobacco products like cigarettes, cigars and chewing tobacco with Rajya Sabha returning the Central Excise (Amendment) Bill, 2025. The new duty structure on these items will replace the compensation cess under the goods and services tax regime. The lower house had cleared the bill on Wednesday.

 

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.

 

Informist had reported in September that the finance ministry may increase excise duty or the National Calamity Contingent Duty on tobacco products to maintain the tax incidence after the GST compensation cess is discontinued. 

 

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 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.

 

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.

 

The government has also introduced Health Security Se National Security Cess Bill, 2025, in Lok Sabha, proposing a new cess on pan masala over the 40% GST. This cess, however, is not to impose additional tax on end-use products, but on the machinery and production capacity of units, Finance Minister Nirmala Sitharaman said in Lok Sabha. The cess will augment the resources for meeting expenditure on national security and for public health, the minister said.  End

 

Reported by Sagar Sen

Edited by Saji George Titus

 

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