Government Notifies Higher Levies on Tobacco Products From Feb 1

New Delhi: Cigarettes, beedis, pan masala and other tobacco related products are set to become costlier from February 1 following the government’s notification of new taxes and cess on these items. The revised levy structure will introduce additional excise duty on tobacco products and a new Health and National Security Cess on pan masala, replacing the existing GST compensation cess.
Under the new framework, pan masala, cigarettes, tobacco and similar products will continue to attract a Goods and Services Tax rate of 40 percent, while beedis will be taxed at 18 percent GST. These GST rates will remain unchanged. However, the overall tax burden will increase due to the introduction of the new levies that will apply over and above GST.
Pan masala manufacturers will be subject to the newly introduced Health and National Security Cess, while cigarettes, chewing tobacco and other tobacco products will attract additional excise duty. The government has clarified that these levies will come into force on February 1, the same date on which the existing compensation cess will be withdrawn.
In a related move, the Finance Ministry has notified new rules governing the manufacture and taxation of chewing tobacco, jarda scented tobacco and gutkha. The Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines Rules, 2026 lay down provisions for determining production capacity and collecting duty based on packing machines used by manufacturers. These rules aim to strengthen monitoring and improve compliance in a sector often linked to tax evasion.
Parliament had approved two separate Bills in December, enabling the government to impose the Health and National Security Cess on pan masala and additional excise duty on tobacco products. The notification issued this week formalises the rollout of these measures and provides clarity on the transition away from the compensation cess regime.
The compensation cess was originally introduced to support states for revenue losses following the rollout of GST and has been levied at varying rates on tobacco and pan masala. With its removal from February 1, the new levies will become the primary mechanism for taxing these products beyond GST.
The changes are expected to push up retail prices of cigarettes, beedis and pan masala, while also tightening regulatory oversight of the sector through stricter duty collection mechanisms.