New Tax Structure for Tobacco and Pan Masala Products

The government has announced that, From February 1, 2026, additional excise duties and a Health and National Security Cess will be levied on tobacco products and pan masala, alongside a revised GST rate.

Key Features of the Notification

• The new levies will apply in addition to GST, not as a substitute for it.
• The GST compensation cess, currently levied at varying rates on these products, will cease to exist from February 1.
• The measures are based on two Bills approved by Parliament in December 2025, enabling the new cess and excise duty.
  • Health Security se National Security Bill, 2025
  • Central Excise (Amendment) Bill, 2025
• Revised Tax Structure
  • GST Rates:
    • Pan masala, cigarettes, tobacco, and similar products: 40% GST
    • Bidis: 18% GST (from 28%)
  • Additional Levies
    • Pan masala: Subject to a Health and National Security Cess.
    • Cigarettes, tobacco, and related products: Subject to additional excise duty.
  • These levies will operate over and above GST, increasing the overall tax incidence on “sin goods”.
• Implementation: The Finance Ministry has notified the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026.
  • This Rules laydown framework for determining production capacity and collecting excise duties from manufacturers of these products.

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