New 70% Cess and Higher Excise Duty to Garner Resource for Defence

· Health Security and National Security Cess Bill, 2025 to be Introduced

Currently, tobacco, cigarettes and related items are taxed at 28% GST, plus a compensation cess of 5–290%.

The Central government is preparing to overhaul the taxation structure on tobacco and cigarette products by introducing a new cess of 70% or more, replacing the existing GST Compensation Cess. Finance Minister Nirmala Sitharaman will present the Central Excise (Amendment) Bill, 2025 in the Lok Sabha to ensure tax incidence remains high after the compensation levy is phased out. Under the new framework, tobacco will be taxed at 70% cess in addition to 40% GST, while cigarettes will attract a specific duty ranging from ₹2,700 to ₹11,000 per 1,000 sticks, based on size. The government said the move is necessary to safeguard revenue and maintain public health deterrence. A separate Health Security and National Security Cess Bill will also be introduced, beginning with pan masala.

[ABS News Service/01.12.2025]

The Central government is set to replace the Compensation Cess with a new levy of 70% or higher on tobacco and tobacco-related products.

Finance Minister Nirmala Sitharaman will introduce the Central Excise (Amendment) Bill, 2025, in the Lok Sabha on Monday to replace the existing GST Compensation Cess currently imposed on these products.

Under the new Bill, tobacco and related products will attract a 70% cess over and above 40% GST, while cigarettes will face a specific cess ranging from Rs 2,700 to Rs 11,000 per thousand sticks, depending on length. The move is aimed at safeguarding tax revenues once the Compensation Cess is phased out.

According to the Statement of Objects and Reasons, the Compensation Cess on tobacco and related products will be discontinued after all interest payments and loan liabilities under the cess account are fully settled. The amendment is intended to provide the government with fiscal space to increase the central excise duty on tobacco to “protect the tax incidence”.

The proposed overhaul reflects the government’s intent to maintain the historically high tax burden on tobacco. Currently, tobacco, cigarettes and related items are taxed at 28% GST, plus a compensation cess of 5–290%.

The FM will also introduce the Health Security and National Security Cess Bill, 2025, which proposes a new cess on pan masala and possibly other products to be notified later.