40% GST on Tobacco Products – Centre Takes a Landmark Decision

With the objective of reducing tobacco consumption, improving public health, and increasing government revenue, the Central Government has taken a major policy decision. In addition to GST, an additional excise duty will be imposed on tobacco products in line with international taxation practices. These revised tax measures will come into effect from February 1, 2026. The government stated that this move was necessary as there have been no revisions in tobacco taxation since the introduction of GST seven years ago.

Under the new framework, products such as pan masala, gutkha, chewing tobacco, and zarda will attract higher excise duties along with health and national security cess. The maximum GST rate will be increased to 40 percent. Cigarettes will be taxed based on length and filter type, with additional levies ranging from ₹2,050 to ₹8,500 per 1,000 sticks. A new valuation mechanism based on the Maximum Retail Price (MRP) printed on packages will also be implemented.

Revenue generated from excise duty will be distributed to states in accordance with Finance Commission recommendations. Health cess will also be imposed on the production capacity of pan masala manufacturing units. From February 1, CCTV installation will be mandatory in chewing tobacco and gutkha manufacturing facilities.

Meanwhile, the Tobacco Institute of India (TII) has cautioned that steep tax hikes may lead to sharp price increases and could fuel illegal trade and smuggling. The industry body has urged the government to implement the tax increases in a phased manner and to review the impact on farmers, MSMEs, retailers and the domestic tobacco industry.