India will implement increased taxation on cigarettes, pan masala, and tobacco products starting February 1, following the government’s formal notification of revised excise duty and health cess regulations this week.
The new tax framework will impose higher levies on these items alongside a 40 percent Goods and Services Tax (GST), effectively replacing the existing GST compensation cess previously applied to such “sin goods.”
Impact of Revised Tax Structure
Beginning February 1, cigarettes and tobacco products will face a 40 percent GST rate, while biris will be subject to 18 percent GST. Additionally, tobacco items will incur supplementary excise duty, and pan masala manufacturers will face a new Health and National Security Cess. These charges supersede the compensation cess that was previously levied at varying rates.
The Finance Ministry has also released updated regulations governing capacity determination and duty collection for items including chewing tobacco and Gutkha packing machinery, forming part of the comprehensive regulatory overhaul supporting the tax restructuring.
Market Reaction: Tobacco Stocks Plunge
Equity markets responded sharply to the announcement, with shares of leading tobacco manufacturers experiencing steep declines in Thursday’s early trading session following the excise duty notification, according to Business Standard.
On the Bombay Stock Exchange, ITC Ltd shares dropped approximately 6 percent, while Godfrey Phillips India plummeted nearly 10 percent, with certain reports indicating these tobacco stocks touched levels close to their 52-week lows.
Industry analysts suggest the elevated duty framework could compress profit margins for cigarette producers and potentially drive retail prices upward by Rs 2-3 per cigarette stick for select products, which may subsequently weaken consumer demand.
India’s estimated 100 million smokers are expected to bear the direct financial burden of the combined excise duty and GST increases at point of sale.