New taxes and cess announced on cigarettes, paan masala, and tobacco; to be implemented from February 1st, with different rates for cigarettes and bidis.

The central government made a significant announcement on December 31, 2025, the last day of the year, regarding taxes on cigarettes, pan masala, and other tobacco products. The government announced that an additional excise duty will be levied on tobacco products from February 1, and a new cess will be imposed on pan masala.

The new taxes on tobacco and pan masala will be in addition to the existing GST rates and will replace the compensation cess currently levied on these harmful products.

How much tax will be levied on tobacco products now?

According to the government notification, from February 1, pan masala, cigarettes, tobacco, and similar products will attract a 40% GST, while beedis will be subject to an 18% Goods and Services Tax (GST).

Parliament had passed two bills in December, allowing for the imposition of a new health and national security cess on the manufacture of pan masala and an excise duty on tobacco.

The government on Wednesday fixed February 1 as the date for implementing these levies. The existing GST compensation cess, which is currently levied at varying rates, will be discontinued from February 1.

53% tax on tobacco products

The total tax on cigarettes in India currently stands at approximately 53% of the retail price, which is significantly lower than the World Health Organization's benchmark of 75%, aimed at reducing consumption. This includes a 28% Goods and Services Tax and an additional value-based levy depending on the size of the cigarette.