Wed Dec 03 12:26:42 UTC 2025: Summary:

Finance Minister Nirmala Sitharaman introduced the Central Excise (Amendment) Bill, 2025, in the Lok Sabha to levy excise duty on tobacco products after the GST compensation cess expires. The aim is to maintain the current tax incidence on tobacco, preventing it from becoming more affordable. The bill proposes specific excise duties on various tobacco products, including unmanufactured tobacco, cigars, and cigarettes. The Finance Minister stated the bill is necessary as the loans taken to compensate states for GST revenue loss during COVID-19 will soon be repaid, and the compensation cess will cease to exist.

News Article:

India Imposes New Excise Duty on Tobacco to Maintain Tax Levels

New Delhi, December 3, 2025 – Finance Minister Nirmala Sitharaman today introduced the Central Excise (Amendment) Bill, 2025, in the Lok Sabha, outlining a new excise duty structure for tobacco products. The move comes as the GST compensation cess, currently levied on tobacco, is set to expire after loans taken to offset state revenue losses during the COVID-19 pandemic are repaid.

According to Minister Sitharaman, the new excise duty aims to maintain the current tax burden on tobacco, preventing a decrease in price that could result from the expiration of the GST cess. “In a way we are saying cigarettes should not become affordable now because incidence has become lesser,” she stated during the bill’s discussion.

The bill proposes varying excise duties on different tobacco products. Unmanufactured tobacco will face a duty of 60-70%, while cigars and cheroots will be taxed at 25% or ₹5,000 per 1,000 sticks, whichever is higher. Cigarettes will also be subject to excise duty based on length and filter status.

The existing system levies a 28% GST along with a varied cess on tobacco products. The GST compensation cess was initially introduced in 2017 for a period of five years, later extended until March 31, 2026, to cover the ₹2.69 lakh crore loan taken by the Centre to compensate states for revenue losses caused by GST implementation.

With the loan repayment nearing completion, the government aims to ensure continued revenue collection through the excise duty. The bill is currently under discussion in the Lok Sabha.

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