FM Nirmala Sitharaman Introduces Bills To Levy Excise Duty On Tobacco And Cess On Pan Masala

Finance Minister Nirmala Sitharaman introduces bills to replace GST compensation cess, imposing central excise duty on tobacco and a new cess on pan masala after loan repayment completion.

New Delhi| December 1, 2025:Finance Minister Nirmala Sitharaman on Monday introduced two key bills in the Lok Sabha aimed at restructuring taxation on sin goods. The Central Excise (Amendment) Bill, 2025, will replace the existing GST compensation cess currently applied to tobacco products such as cigarettes, cigars, hookahs, zarda, and chewing tobacco.

According to the bill’s statement of objects and reasons, the measure provides the government “fiscal space to increase central excise duty rates on tobacco products to protect tax incidence” after the cessation of the GST compensation cess. Cigars, cheroots, and cigarettes will see excise duties ranging from Rs 5,000 to Rs 11,000 per 1,000 sticks, while unmanufactured tobacco will attract 60–70% duty and nicotine-based inhalation products 100%. Currently, cigarettes are taxed with a 5% ad valorem compensation cess along with Rs 2,076–3,668 per 1,000 sticks depending on size.

The Health Security and National Security Cess Bill, 2025 proposes a new cess on pan masala production. Sin goods like tobacco and pan masala continue to carry 28% GST plus varying compensation cess, which will now be replaced by excise duty for tobacco and a new cess for pan masala.

The GST compensation cess, initially introduced in 2017 to offset states’ revenue loss, was extended till March 31, 2026, to repay loans taken during the COVID period. With the loan repayment expected to complete in December, the compensation cess will be discontinued, paving the way for these new taxation measures.

This move is expected to maintain revenue collection while continuing to regulate consumption of tobacco and pan masala products.

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