Tobacco Excise Overhaul: Central Excise Amendment Act 2025
Why in the news
The Centre notified a new excise law for tobacco, operational from 1 February 2026. The GST Compensation Cess stops, and heavier central excise levies replace it so tobacco gets costlier.
Key facts
- Amends the Central Excise Act, 1944; tobacco stays outside full GST.
- Rates were reset to keep the overall tax burden from falling once the cess goes.
- Beedis now carry 18% GST; other tobacco goods carry 40% GST.
- Chewing tobacco, gutkha, khaini and jarda will be valued on the Retail Sale Price (RSP) on the pack, to curb under-reporting and evasion.
| Product | New excise | Earlier excise |
|---|---|---|
| Smoking mixtures (pipe/cigarette) | 325% | 60% |
| Chewing tobacco | 100% | 25% |
| Hookah / Gudaku tobacco | 40% | 25% |
| Unmanufactured tobacco | 70% | 64% |
| Cigarettes (per 1,000 sticks) | ₹2,700-₹11,000 | ₹200-₹735 |
About the GST Compensation Cess
- An extra levy on selected goods, including tobacco, to make up States’ revenue loss after GST.
- Started July 2017 for five years (to June 2022); continued afterwards to clear compensation liabilities; ends 1 February 2026.
Significance
- Global health guidance says real tobacco prices should rise faster than incomes; cigarettes had not become less affordable despite income growth.
Exam angle
- Parent law: Central Excise Act, 1944.
- Levy that ends on 1 February 2026: GST Compensation Cess.