New Excise Duty and Cess on Tobacco, Pan Masala

The government has notified 1 February as the date from which new fiscal levies on tobacco products and pan masala will come into force. These changes mark a shift in the taxation structure of so-called sin goods, replacing the existing compensation cess regime with product-specific levies outside the Goods and Services Tax framework.

Change in Tax Structure from February 1

Under the new notification, additional excise duty will be imposed on tobacco and related products, while a Health and National Security Cess will be levied on pan masala. These levies will apply over and above the applicable GST rates. The move effectively ends the compensation cess that was earlier charged on such products to offset states’ revenue losses following GST implementation.

Revised GST Rates on Tobacco Products

From February 1, pan masala, cigarettes, tobacco, and similar products will attract a GST rate of 40 per cent. Biris, however, will continue to be taxed at a lower GST rate of 18 per cent. The differential rate structure reflects policy intent to balance revenue considerations with the economic realities of low-income consumers associated with certain products like biris.

Health and National Security Cess Explained

The newly introduced Health and National Security Cess will be levied specifically on pan masala manufacturing. Tobacco and its derivatives will instead attract an additional excise duty. Both levies are designed to operate independently of GST and are aimed at discouraging consumption while generating dedicated revenue for public health and national security-related priorities.

Imporatnt Facts for Exams

• Compensation cess on tobacco and pan masala is being replaced by new levies.
• GST rate on cigarettes and pan masala is fixed at 40 per cent.
• Biris continue to attract a lower GST rate of 18 per cent.
• Health and National Security Cess is outside the GST framework.

Legislative Approval and Policy Rationale

The enabling legal framework for the new levies was approved by “Parliament of India” in December through the passage of two Bills. These Bills authorised the imposition of the Health and National Security Cess on pan masala and additional excise duty on tobacco products. The measures align with the “Government of India”’s broader objective of reducing harmful consumption while ensuring stable revenue flows beyond GST compensation mechanisms.