Prices of cigarettes and other tobacco products are set to increase, with the government notifying February 1 as the date from which additional excise duty on tobacco products and a health cess on pan masala will be levied. The new excise duty will replace the existing GST compensation cess levy on such 'sin goods'. A health and national security cess and excise duty on pan masala and tobacco products, respectively, will be over and above the 40 per cent Goods and Services Tax (GST) rate. As per notifications issued by the Finance Ministry late on December 31, 2025, while in the case of 'biris', it would be on top of the 18 per cent GST rate effective February 1, 2026.
Additional excise duty
A new MRP-based valuation mechanism has been introduced for tobacco products (chewing tobacco, filter khaini, jarda scented tobacco, gutkha) whereby GST value shall be determined based on the retail sale price declared on the package. Currently, a 28 per cent GST and a compensation cess at varying rates are levied on all tobacco products, including pan masala, cigarettes, chewing tobacco, cigars, hookah, zarda, and scented tobacco.
An additional excise duty of 91 per cent on gutkha, 82 per cent on chewing tobacco, and 82 per cent on jarda scented tobacco will be levied.
Under the new structure, cigarette taxes are levied based on their length in millimetres. Another factor in determining the tax is whether the cigarettes are filtered or non-filtered. In simple words, longer cigarettes are highly taxed, which eventually translates into a hike in retail prices.
A cigarette that measures 65 mm in length attracts a duty of Rs 2,700 to Rs 3,000 per 1,000 sticks, depending on the category. Notably, this is the lowest tax slap and is generally seen in the cases of shorter sticks.
When it comes to a cigarette length between 65 mm and 70 mm, the tax slab becomes bigger, with a significant rise in duties.
For cigarettes that measure between 70 mm and up to 75 mm, the tax increases significantly to Rs 7,000 per 1,000 sticks. Thus, cigarettes of these lengths are more expensive to manufacture and sell as well.
The highest tax is levied on a category referred to as “other." This category attracts a duty of Rs 11,000 per 1,000 sticks. This category generally features cigarettes that are longer in length or are differently designed. The products featured in this category don’t fit into standard slabs.
Health cess on pan masala
Besides, the health cess will be levied on the production capacity of pan masala manufacturing units. A portion of the revenue from this cess will be shared with states through health awareness and other health-related schemes/activities.
The purpose of this health cess is to create a "dedicated and predictable resource stream" for two domains of national importance, health and national security, Finance Minister Nirmala Sitharaman had said in Parliament last month.
