The prices of cigarettes and other tobacco products are set to rise sharply from next month as the Union government has decided to hike excise rates on these products. The Finance Ministry on Wednesday notified a major restructuring of taxes on tobacco products, including cigarettes, effective February 1, 2026. The changes stem from the Central Excise (Amendment) Act, 2025 passed in December and revive and strengthen central excise duties to replace the expiring GST compensation cess. This aims to maintain high taxation levels on “sin goods” while addressing public health concerns and revenue stability.
The Finance Ministry issued multiple notifications on December 31, 2025, setting February 1 as the implementation date. These include higher excise duties on cigarettes ranging from ₹2,050 to ₹8,500 per 1,000 sticks, depending on length and type, in addition to a restructured GST rate of 40% for most tobacco products. The GST compensation cess on these items will be reduced to nil from the same date.
The basic excise duty on tobacco products has remained unchanged for almost 7 years, which was changed more frequently before the introduction of the GST regime. With the new ruling, cigarettes will attract both excise and GST, a dual taxation structure approved by the Supreme Court.
The key changes to the tax structure are as follows: From February 1, cigarettes, tobacco, pan masala, and similar products will attract a GST rate of 40 per cent, while biris will attract 18 per cent GST. For cigarettes, a new specific excise duty of ₹2,050–₹8,500 per 1,000 sticks will be imposed, replacing the lower pre-GST rates of ₹200–₹735. Combined with 40% GST, this is expected to push retail prices higher, particularly for longer or premium variants.
For other tobacco products, excise duties on chewing tobacco to rise from 25% to 100%, hookah tobacco from 25% to 40%, and smoking mixtures from 60% to 325%.
Smokeless tobacco, such as gutkha and pan masala, will see the introduction of machine-capacity-based excise duty under the new Packing Machines Rules, 2026, to curb evasion in unorganized sectors. Additionally, tobacco products have been shifted to a 40% GST slab from the previous 28% plus varying cess, with MRP-based valuation for certain items like chewing tobacco and gutkha.
Finance Minister Nirmala Sitharaman had emphasised during parliamentary debates that the govt is reforming the tax structure to ensure that cigarettes and other tobacco products do not become more affordable, aligning with World Health Organization (WHO) recommendations. India’s current total tax incidence on cigarettes stands at about 53% of retail price, below the WHO’s suggested 75% benchmark to deter consumption.
The reforms also activate the Health Security-cum-National Security Act, 2025, adding regulatory oversight and funding public health and security initiatives.
Shares of major tobacco companies plunged on January 1 following the publication of the gazette notifications. ITC Ltd., India’s largest cigarette manufacturer, fell over 9%, hitting a 52-week low, while Godfrey Phillips India dropped nearly 17%.
