Lok Sabha Passes Bill to Raise Excise Duty on Tobacco Products as GST Cess Ends

The Lok Sabha has passed the Central Excise (Amendment) Bill, 2025, which will replace the existing GST compensation cess on tobacco products with higher excise duties. This move comes as the GST compensation cess on tobacco is set to end in March 2026. The bill aims to maintain the tax incidence on tobacco products while ensuring steady revenue flows to states.

Finance Minister Nirmala Sitharaman explained that this is not an additional tax but a return to the pre-GST excise duty system. She emphasized that the excise duties collected will be shared with states as per the Finance Commission’s recommendations. The bill is intended to keep tobacco product prices stable, discouraging consumption, especially among the youth, by maintaining a high tax burden on such products.

Key changes include a steep hike in excise duties on various tobacco products. Cigarettes will face taxes ranging from Rs 2,700 to Rs 11,000 per 1,000 sticks, a significant rise from the previous Rs 200 to Rs 735 range. The excise duty on chewing tobacco will increase from 25% to 100%, while hookah tobacco duties will rise from 25% to 40%. The duty on smoking mixtures will surge from 60% to 325%, and unmanufactured tobacco will see an increase from 64% to 70%.

The bill stirred debate in Parliament, with BJP MP D. Purandeswari highlighting the health risks of tobacco use, which causes an estimated 1.35 million deaths annually in India. Some opposition members expressed concerns about the impact on tobacco farmers and called for a detailed review. The government assured support for crop diversification programs to aid affected farmers.

This amendment safeguards public health objectives by continuing the policy of higher taxation on tobacco, aligning fiscal measures with health imperatives while honoring the transition away from the GST cess system.