India will levy higher taxes on tobacco products and pan masala from February 1, 2026, as the government, on late Wednesday, notified a new excise duty and cess to replace the GST compensation cess, according to news agency PTI.
According to the notification, the new levies on tobacco and pan masala will be imposed over and above the applicable GST rates. These measures will replace the GST compensation cess, which is currently charged at varying rates on sin products. From February 1, pan masala, cigarettes, tobacco and similar products will attract a GST rate of 40 per cent, while biris will be taxed at 18 per cent under the GST framework.
In addition to GST, a Health and National Security Cess will be levied on pan masala. Tobacco and tobacco-related products will attract an additional excise duty, as notified by the Finance Ministry.
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. These rules lay down the mechanism for assessing production capacity and collecting duty from manufacturers of chewing tobacco, scented tobacco and gutkha.
PARLIAMENTARY APPROVAL IN DECEMBER
The government’s move follows parliamentary approval in December of two Bills that allow the levy of the new Health and National Security Cess on pan masala manufacturing and an additional excise duty on tobacco products.
With Parliament clearing the legislation, the Centre was required to notify the date from which the new tax regime would take effect. The government on Wednesday formally notified February 1, 2026, as the implementation date.
GST COMPENSATION CESS TO END
As part of the overhaul, the existing GST compensation cess on tobacco and pan masala will cease to apply from February 1. The compensation cess was originally introduced to offset revenue losses suffered by states after the rollout of GST.
By replacing it with a combination of cess and excise duty, the Centre is reshaping the taxation framework for tobacco and pan masala, while continuing to impose a high tax burden on products it classifies as harmful to public health.
The changes are expected to have implications for manufacturers, pricing and consumption patterns once they come into force early this year.
