Additional excise duty on cigarettes and tobacco products and health cess on pan masala will come into effect from February 1. This additional tax is imposed on top of the top 40 percent GST rate.
The excise and excise duties will replace the existing 28 per cent Goods and Services Tax (GST) plus a compensatory tax on such ‘sin goods’ that existed on these items since the introduction of GST on July 1, 2017.
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Cigarette prices
With effect from February 1, the Central Excise Tax Act was amended to impose an excise tax ranging from ₹2.05-8.50 per stick based on length of cigarette.
Under the new tax structure, short unfiltered cigarettes (up to 65 mm) are subject to an additional duty of approx ₹2.05 per stick, while short filter cigarettes of the same length will be charged approx ₹2.10 per stick.
Cigarettes of medium length (65-70mm) will face an additional duty of roughly Rs ₹3.6-4 per stick and long, premium cigarettes (70-75mm) approx ₹5.4 per stick.
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The highest duty ₹8.50 per stick only applies to unusual or non-standard cigarette designs and most popular cigarette brands do not fall under this limit.
Category of cigarettes Additional duty above 40 percent GTSShort cigarettes without filter (up to 65 mm) ₹2.05 per piece Short cigarettes with filter (up to 65 mm) ₹2.10 per stick Cigarettes of medium length (65-70 mm) ₹3.6-4 per long, premium cigarette (70-75mm) ₹5.4 on stickother’s category Higher duty ₹8.5 per stick
Pan Masala prices
The Health and National Security Levy Act imposes a cess on the production capacity of pan masala units. The total tax incidence on pan masala will be maintained at the current level of 88 per cent after factoring in 40 per cent GST.
Chewing and incense tobacco, yarda and gutkha will be subject to excise duty of 82 per cent and 91 per cent respectively.
New Rules – “New Pricing Mechanism Based on MRP”
A new MRP-based pricing mechanism will be implemented for tobacco products (chewing tobacco, khaini filter, yarda, gutkha) from February 1, with GST being determined based on the retail selling price declared on the pack.
Pan masala manufacturers have to apply for fresh registration under the Health and National Security Tax Act from February 1.
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Manufacturers of these products will have to install a working camera system covering all packaging machines and keep the recording for at least 24 months.
They will also have to tell the revenue authorities the number of machines and their capacity and can also apply for a reduction in excise duty if the machine is out of order for at least 15 consecutive days.
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Excise tax revenues from tobacco products will be redistributed among the states as recommended by the Finance Commission. The tax revenue of the center forms part of the divisible pool and 41 percent of it is distributed among the states.
In addition, cess revenue levied on production capacity of pan masala production units will be shared with states through health awareness or other health related programmes/activities.
GST Council
The collection of such tax on pan masala and excise tax on tobacco was approved by Parliament in December. The GST Council, comprising finance ministers from the Center and states, decided in September 2025 on the mechanism for collecting cess and excise duty on these products over and above GST once the compensation mechanism ends after repayment of loans.
The GST Council has decided that the compensatory cess will cease to exist after repayment of loans taken to compensate states for loss of GST revenue during COVID. The ₹The loan in the amount of 2.69 million crowns will be repaid by January 31, 2026.
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At the time of implementation of GST on 1 July 2017, a compensation mechanism was put in place for 5 years till 30 June 2022 to offset the revenue losses suffered by states due to the implementation of GST.
The foreclosure option was later extended by 4 years until March 31, 2026, and the collection is used for repayment ₹2.69 lakh crore loan taken by the Center to compensate states for loss of GST revenue during the Covid period.
