Fri Jan 02 05:50:00 UTC 2026: Summary:
On January 1, 2026, India’s Ministry of Finance announced a new taxation regime for tobacco products effective February 1, 2026. This includes the implementation of the Central Excise (Amendment) Act, 2025, which specifies new excise duty rates on tobacco. A cess on pan masala will come into force, justified as a necessary funding source for national security. The GST compensation cess, initially introduced in 2017, will end, and new GST rates will be implemented: bidis will be taxed at 18%, while other tobacco products move to a 40% slab. A new valuation mechanism based on retail price will be applied to certain tobacco products. The move aims to increase the affordability of tobacco relative to consumer income, aligning with global public health guidelines.
News Article:
India Announces Sweeping Tobacco Tax Reforms Effective February 1st
New Delhi, January 2, 2026: The Indian government is set to overhaul its tobacco taxation system, introducing a series of changes that take effect on February 1, 2026. The Ministry of Finance announced the implementation of the Central Excise (Amendment) Act, 2025, ushering in new excise duty rates for tobacco products.
A significant development is the imposition of a dedicated cess on pan masala, which the government says will be used to secure national security interests. According to the Ministry, this dedicated cess creates a more reliable funding stream for long-term security preparedness, while not raising the tax burden on the general population.
The changes coincide with the expiration of the Goods and Services Tax (GST) compensation cess, initially introduced to compensate states for revenue losses following the implementation of GST in 2017.
The government is also restructuring GST rates for tobacco products. Bidis, a type of inexpensive cigarette popular in India, will be taxed at 18%, down from the defunct 28% slab. All other tobacco products will be moved to the 40% slab. In addition, a new valuation mechanism based on retail sales price will be used to determine the GST value of tobacco products like chewing tobacco and gutkha.
The Ministry of Finance stated that these measures aim to make tobacco products less affordable, aligning with international public health recommendations to reduce tobacco consumption and improve public health. “For India, affordability has either stagnated or increased in the past decade, meaning cigarettes have not become more expensive relative to consumers’ purchasing power,” the Ministry explained.
First Piper 