Cigarettes, Gutkha to Get Costlier as India Hikes Excise Duties from Feb 2026

In a major policy shift, the Finance Ministry on Wednesday notified a comprehensive overhaul of the excise duty structure for tobacco products, marking the first substantive revision since the rollout of the Goods and Services Tax (GST) regime in 2017.

The changes were announced through a series of notifications issued under the Central Excise Act and the Central Excise (Amendment) Act, 2025.

Under the revised framework, cigarettes will attract additional excise duty ranging from Rs 2,050 to Rs 8,500 per 1,000 sticks, depending on their length and category. This levy will be imposed over and above the existing GST of up to 40 per cent, significantly increasing the overall tax burden and pushing up retail prices across cigarette segments.

The higher duties is expected to translate into sharp price increases, particularly for longer and filter cigarettes, as manufacturers pass on the additional tax costs to consumers.

The basic excise duty on cigarettes had remained unchanged for nearly seven years. Before the GST regime, excise duties on cigarettes were revised more frequently and formed a major component of tobacco taxation. With the latest move, the government has effectively reinstated excise as a specific levy on tobacco products, alongside GST, a dual taxation structure that has previously been upheld by the Supreme Court.

At the same time, the Centre has withdrawn the GST Compensation Cess on all tobacco products, reducing the cess rate to zero. GST slabs on tobacco have also been rationalised, with products now attracting either 18 per cent or 40 per cent GST, while the earlier 28 per cent slab has been removed.

Prices of smokeless tobacco products are also expected to rise following the introduction of a machine-capacity-based excise levy. Chewing tobacco, jarda scented tobacco and gutkha will now be taxed based on the number, speed and output capacity of packing machines, as well as the retail sale price of the product, under the newly notified Packing Machines Rules, 2026.

The government said the capacity-based levy is intended to curb widespread tax evasion in highly mechanised and cash-driven segments of the tobacco industry, where output-linked assessment has been difficult to enforce. Similar levies were in place before GST and are being reintroduced to tighten compliance.

According to the Finance Ministry, the revised tax structure aligns India's tobacco pricing policy with global public health recommendations, which call for regular increases in specific excise duties to offset inflation and rising disposable incomes. Official estimates indicate that tobacco-related illnesses, particularly cancer, impose a growing fiscal burden on the public healthcare system.

All changes will come into effect from February 1, 2026, giving manufacturers and distributors a limited transition period to recalibrate prices, update compliance systems and adjust production plans ahead of the expected price hikes.

- ANI