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India Imposes New Tobacco Tax to Curb Consumption and Boost State Revenue

The Indian government has notified a significant increase in excise duty on cigarettes and tobacco products, set to take effect in February 2026. The new duty ranges from Rs 2,050 to Rs 8,500 per thousand sticks and is applied on top of the existing 40% GST. Finance Minister Nirmala Sitharaman stated the move aims to deter tobacco use for health reasons and that the revenue will be shared with states. This change follows the passage of the Central Excise (Amendment) Bill, 2025, and reverts to a pre-GST excise system.

Key Points: New Excise Duty on Tobacco Products Effective February 2026

  • New excise duty on cigarettes
  • Effective from February 1, 2026
  • Revenue to be shared with states
  • Aimed at reducing tobacco consumption
  • Replaces the GST compensation cess
2 min read

Centre imposes additional excise duty on tobacco products, to be effective from February

India hikes excise duty on cigarettes, adding Rs 2,050-8,500 per 1,000 sticks over GST. Revenue to be shared with states to deter tobacco use.

"This was primarily due to health-related concerns, as higher prices or taxes were intended to act as a deterrent. - Finance Minister Nirmala Sitharaman"

New Delhi, January 1

The Ministry of Finance has notified a major revision in excise duty on cigarettes and tobacco products, effective February 1, 2026.

According to the notification issued on Wednesday, the government has imposed additional excise duty on cigarettes in the range of Rs 2,050 to Rs 8,500 per 1,000 sticks, depending on the length and type of the product.

The duty will be levied over and above the existing 40 per cent Goods and Services Tax (GST) on tobacco and similar product.

This duty raise comes close on the heels of Parliament passing a Bill aimed at increasing excise duty on tobacco products and their manufacturing.

The Central Excise (Amendment) Bill, 2025, passed by the Parliament recently, aimed at revising excise duties on tobacco and related products after the expiry of the GST compensation cess.

Finance Minister Nirmala Sitharaman had said that the revenue collected will go to the divisible pool, and will be redistributed again (at the 41%) with the States.

"Many members here made the comment that this is a cess. Excise is not a cess. Excise duty existed before GST. Compensation cess is reverting back to the Centre to be collected as Excise duty, which will be redistributed to the States at the 41% allocated," she had said in the parliament.

Many countries revise tobacco taxes annually, while many link it with inflation, she noted. "Even in India, prior to GST, tobacco rates were increased annually. This was primarily due to health-related concerns, as higher prices or taxes were intended to act as a deterrent so that people would not get into the habit," she said.

The government is bringing back the excise duty which existed priority to the GST system, she said.The minister said because of various initiatives taken by the government, acreage under tobacco cultivation of over 1.12 lakh acres (45,323 hectare) moved to other crops between 2018 to 2021-22. It has shifted to sugarcane, groundnut, oil palm, cotton, chilli, maize, onion, pulses, and turmeric, she had said.

- ANI

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Reader Comments

S
Sarah B
While the health intent is good, this feels like another indirect tax hike on common people. Inflation is already high, and this will just push up prices of everything else too. The timing could be better.
P
Priya S
Good to see the shift from tobacco farming to other crops mentioned. My uncle in Andhra switched to turmeric and is doing much better. This policy needs to support more farmers in making that transition.
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Arjun K
The finance minister's clarification was needed. People were confusing it with a cess. Excise duty going into the divisible pool is the right constitutional approach. Hope states use this revenue for healthcare.
V
Vikram M
Rs 8,500 per 1000 sticks is a massive hike! Beedi prices will shoot up too, affecting the poorest the most. The government should pair this with better and affordable de-addiction programs.
K
Karthik V
As someone trying to quit, I support this. Every price increase is a nudge to stop. But the real test is enforcement - we need to stop smuggling and illegal sales which increase with higher taxes.

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