Beedi, cigarettes and pan masala to become costlier, new cess to be implemented from February 1

Additional excise duty on tobacco products and health cess on pan masala will be applicable from February 1. According to information provided by the government, the new taxes on tobacco and pan masala will be in addition to GST. 

These will replace the compensation cess currently being levied on such harmful products. According to the government notification, from February 1, pan masala, cigarettes, tobacco and similar products will be subject to GST at the rate of 40 percent, while bidis will be subject to 18 percent Goods and Services Tax (GST). 

Additionally, health and national security cess will be levied on pan masala, while tobacco and related products will be subject to additional excise duty.

Parliament approved it in December

The Finance Ministry on Wednesday notified the Chewing Tobacco, Zarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026. 

Parliament approved two bills in December that allow the imposition of a new health and national safety cess and an excise duty on tobacco on the manufacture of pan masala. 

The government announced on Wednesday that these cesses will come into effect from February 1. The existing GST compensation cess, levied at varying rates, will cease to exist from February 1.

GST compensation cess abolished

As part of this change, the existing GST compensation cess on tobacco and pan masala will be eliminated from February 1. This compensation cess was originally introduced to compensate states for revenue loss following the implementation of GST. 

By replacing it with a combination of cess and excise duty, the central government is revamping the taxation structure for tobacco and pan masala, while continuing to impose heavy taxes on products considered harmful to public health. These changes, which came into effect earlier this year, are expected to impact manufacturers, prices, and consumption patterns.

The company's shares fell

Shares of ITC, the maker of Gold Flake and the largest cigarette manufacturer in the market, have fallen by nearly 10 percent, bringing the company's stock to ₹365. 

This represents its lowest level in more than 18 months. Meanwhile, shares of Godfrey Phillips India, Marlboro's distributor, have fallen by more than 15 percent, bringing the company's stock to ₹2,335, compared to Wednesday's price of ₹2,761.55.

GST