Union Finance Minister Nirmala Sitharaman speaks in the Lok Sabha during the winter session of Parliament in New Delhi on December 3, 2025. | Photo Credit: Sansad TV via PTI
The Lok Sabha on Wednesday (December 3, 2025) passed a bill imposing higher excise duty on tobacco and related products once the GST offset ends.
The Central Excise Bill, 2025 was passed by a vote in the lower house.
Also Read: Update on Day 3 of Winter Session of Parliament
Once passed, the bill will provide fiscal space for the government to increase the rate of central excise duty on tobacco and related products after the GST offset currently levied on all tobacco products such as cigarettes, chewing tobacco, cigars, hookah, zarda and snuff ceases to exist.
Currently, tobacco and related products are subject to a Goods and Services Tax (GST) of 28% plus tax at varying rates.
The bill proposes to levy an excise tax of 60-70% on unprocessed tobacco. Excise duty on cigars and stubs is proposed at 25% or ₹5,000 per 1,000 sticks, whichever is higher.
Cigarettes are proposed to be taxed depending on length and filter in the range of ₹2,700-11,000 per 1,000 sticks, while chewing tobacco is taxed at ₹100 per kg.
The Bill seeks to replace the table containing rates of duty on tobacco and tobacco products in Section IV of the Fourth Schedule to the Central Excise Act, 1944.
When GST was introduced on July 1, 2017, the rates of central excise on tobacco and similar products were significantly reduced to allow for the collection of compensatory cess without much impact on their tax impact.
Compensatory cesses imposed on tobacco and tobacco products will be terminated as soon as interest payments and credit obligations under the Compensatory Cess Account have been fully settled.’
Finance Minister Nirmala Sitharaman said in the Lok Sabha: “In next, probably, a couple of weeks, the loans will be fully repaid. So the Center wants to make sure that the excise duty is returned to us so that we can levy the duty.”
At the time of implementation of GST on 1 July 2017, a compensation mechanism was put in place for five years till 30 June 2022 to offset the revenue losses incurred by states due to the implementation of GST.
The compensation tax was later extended by four years to 31 March 2026 and the collection is being used to repay a loan of ₹2.69 crore taken by the Center to compensate states for the loss of GST revenue during the Covid period.
Published – 03 Dec 2025 18:52 IST
