Lok Sabha passes Bill to levy higher excise duty on tobacco after GST cess ends

Lok Sabha on Wednesday passed the Central Excise (Amendment) Bill, 2025, allowing the Centre to levy higher excise duty on tobacco and related products once the GST compensation cess ends. The Bill was cleared by a voice vote.

The legislation restores the Centre’s power to impose excise duty on tobacco products after the compensation cess, currently levied along with 28% GST, is discontinued once the government repays the ₹2.69 lakh crore Covid-period loan taken to compensate states. Finance Minister Nirmala Sitharaman said the loan is expected to be fully repaid “in another couple of weeks.”

Under the Bill, excise duty on unmanufactured tobacco will be 60–70%, while cigars and cheroots will attract 25% or ₹5,000 per 1,000 sticks, whichever is higher. Cigarettes will be taxed between ₹2,700 and ₹11,000 per 1,000 sticks, depending on length and filter type. Chewing tobacco will attract ₹100 per kg.

Sitharaman stressed that the move does not impose an additional tax but maintains the existing tax burden after the GST cess sunsets. “This is not a cess. This is excise duty, which existed before GST. The amount will be shared with states as per Finance Commission recommendations,” she said.

The minister cited WHO observations that cigarette affordability in India has stagnated or risen since GST was implemented in 2017, as cess rates remained unchanged. She said excise duty increases are necessary to prevent tobacco products from becoming more affordable and to discourage consumption of demerit goods.

The minister added that there is no change in tax incidence on beedis and that the government is working to diversify farmers away from tobacco cultivation.
(With PTI inputs)