The government has announced a major overhaul of the tax structure on tobacco products and pan masala, with new levies set to come into force from February 1.
The new levies on tobacco and pan masala will be over and above the GST rate, and will replace the compensation cess, which is currently being levied 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 40 per cent Goods and Services Tax (GST) rate, while in case of ‘biris’ it would be on top of the 18 per cent GST rate effective February 1, 2026, as per notifications issued by the Finance Ministry late on December 31, 2025.
The Finance Ministry on Wednesday also notified the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026.
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.
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Parliament had in December approved two Bills allowing the levy of the new Health and National Security Cess on pan masala manufacturing and excise duty on tobacco.
The government notified February 1 as the implementation date for these levies. The current GST compensation cess, which is currently levied at varied rates, will cease to exist effective February 1.
