Cigarettes, pan masala to get costlier from February 1 as govt notifies new excise duty: 5 key points

From the effective date, cigarettes, tobacco and similar products will attract a GST rate of 40 per cent

• New excise duty and health cess on tobacco, pan masala from February 1
• Cigarettes to get 40% GST plus up to Rs 8,500 excise duty per 1,000 sticks.
• Tobacco stocks fell sharply after tax overhaul announcement

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The government has announced a major overhaul of the tax structure on tobacco products and pan masala, with new levies set to come into force from February 1. The changes replace the existing GST compensation cess and have already triggered sharp reactions in tobacco stocks.

1. New taxes effective February 1

February 1 has been notified as the implementation date for an additional excise duty on tobacco products and a Health and National Security Cess on pan masala. These levies will apply over and above the applicable GST rates.

2. GST structure after the change

From the effective date, cigarettes, tobacco and similar products will attract a GST rate of 40 per cent, while biris will be taxed at 18 per cent under GST. The new excise duty and health cess will replace the compensation cess that is currently imposed on these products.

3. Legal and regulatory backing

Parliament approved the Central Excise (Amendment) Bill, 2025, in December, paving the way for higher duties on cigarettes and tobacco. The Finance Ministry has also notified new rules governing the capacity determination and duty collection for chewing tobacco, scented tobacco and gutkha packing machines, providing the regulatory framework for the revised tax regime.

4. Excise duty details on cigarettes

Under the new structure, cigarettes will face excise duty in addition to GST. The duty has been fixed in the range of Rs 2,050 to Rs 8,500 per 1,000 sticks, depending on cigarette length, and will come into effect from February 1.

5. Market reaction to the announcement

Tobacco stocks came under heavy selling pressure following the announcement. ITC shares fell over 9 per cent to around Rs 365, while Godfrey Phillips India declined about 15 per cent to Rs 2,345 in early trade on January 1. Over the past six months, ITC has lost nearly 12 per cent, while Godfrey Phillips India has declined around 20 per cent, reflecting investor concerns over the impact of higher taxes on the sector.