New Delhi, December 3: India’s Lok Sabha on Wednesday passed a bill that will allow the government to raise central excise duties on tobacco and related products once the GST compensation cess is phased out.
The Central Excise (Amendment) Bill, 2025, approved by a voice vote, seeks to restore the Centre’s fiscal authority to tax tobacco products independently of the cess, which currently applies alongside a 28% Goods and Services Tax (GST). The cess is levied on cigarettes, cigars, chewing tobacco, hookah, zarda and other tobacco items.
Under the bill, unmanufactured tobacco will attract an excise duty of 60% to 70%, while cigars and cheroots will be taxed at 25% or 5,000 rupees per 1,000 sticks, whichever is higher. Excise on cigarettes will range from 2,700 to 11,000 rupees per 1,000 sticks depending on length and whether they have filters. Chewing tobacco will be taxed at 100 rupees per kg.
The legislation replaces the tariff table for tobacco products under Section IV of the Fourth Schedule of the Central Excise Act, 1944.
India reduced excise duties on tobacco in 2017 when GST was introduced, making room for the compensation cess without significantly raising the overall tax burden. The cess was created to offset state revenue losses for five years, but its collection was later extended until March 2026 to repay loans taken by the federal government during the COVID-19 period.
Finance Minister Nirmala Sitharaman told the house that the Centre had borrowed 2.69 trillion rupees to compensate states and that the outstanding loans would be fully repaid “in another couple of weeks.” She said restoring excise duty provisions would ensure the government could independently levy taxes on tobacco products once the cess is withdrawn.
