New bills to replace GST cess on tobacco & pan masala
Finance Minister Nirmala Sitharaman on Monday (December 1, 2025) introduced two bills in the Lok Sabha to levy excise duty on tobacco and tobacco products, and a new cess on manufacturing of pan masala, which will replace the GST compensation cess on such sin goods.
The Central Excise (Amendment) Bill, 2025, will replace the GST compensation cess, which is currently levied on all tobacco products like cigarettes, chewing tobacco, cigars, hookahs, zarda, and scented tobacco.
The Bill seeks "to give the government the fiscal space to increase the rate of central excise duty on tobacco and tobacco products so as to protect tax incidence," once the GST compensation cess ends, according to the statement of objects and reasons of the Bill.
The Health Security se National Security Cess Bill, 2025, seeks to levy cess on the production of specified goods like paan masala. The government may notify any other goods on whose manufacturing such a cess can be levied.
Sin goods like tobacco and pan masala currently attract a GST of 28%, plus a compensation cess which is levied at varied rates.
The Central Excise (Amendment) Bill seeks to levy excise duty on cigars, cheroots and cigarettes in the range of Rs.5,000–Rs.11,000 per 1,000 sticks. Also, it proposes levy of 60-70% on unmanufactured tobacco and 100% on nicotine and inhalation products.
Currently, cigarettes attract a compensation cess of 5% ad-valorem plus a Rs.2,076-Rs.3,668 per 1,000 sticks cess, depending on the length.
Once the compensation cess ends, sale of tobacco and related products will attract a 40% GST plus excise duty, while paan masala will attract 40% GST plus the Health Security se National Security Cess.
