Cigarettes, pan masala get costlier from today, Feb 1: Check new rates here

AN additional excise duty on cigarettes and tobacco products, and a health cess on pan masala, will come into effect from 1 February. This additional duty is imposed over and above the highest 40% Goods and Services Tax (GST) rate.

The new cess and excise levies will replace the existing 28% GST plus compensation cess on these ‘sin goods,’ which had been in place since GST was rolled out on 1 July 2017.

Prices of cigarettes

Effective 1 February, the Central Excise Act has been amended to impose excise duty ranging from ₹2.05 to ₹8.50 per stick based on cigarette length.

Under the new tax structure, short non-filter cigarettes (up to 65 mm) will attract an additional duty of about ₹2.05 per stick, while short filter cigarettes of the same length will be charged around ₹2.10 per stick.

Medium-length cigarettes (65-70 mm) will face an additional duty of roughly ₹3.6-4 per stick, and long, premium cigarettes (70-75 mm) about ₹5.4 per stick.

The highest duty of ₹8.50 per stick applies only to unusual or non-standard designs of cigarettes, and most popular cigarette brands do not fall under this slab.

*Cigarette categories: Additional duty over and above 40% GST

Short non-filter cigarettes (up to 65 mm)    ₹2.05 per stick
Short filter cigarettes (up to 65 mm)    ₹2.10 per stick
Medium-length cigarettes (65-70 mm)    ₹3.6-4 per stick
Long, premium cigarettes (70-75 mm)    ₹5.4 per stick
Other categories    Higher duty of ₹8.5 per stick

Pan masala rates

The Health and National Security Cess Act levies cess on the manufacturing capacity of pan masala units. The total tax incidence on pan masala, after taking into account 40% GST, will be retained at the current level of 88%.

Chewing tobacco, and jarda-scented tobacco, gutkha will attract an excise duty of 82% and 91%, respectively.

New rules — 'new MRP-based valuation mechanism'

From 1 February, a new MRP-based valuation mechanism will be introduced for tobacco products (chewing tobacco, filter khaini, jarda-scented tobacco, gutkha) whereby GST shall be determined based on the retail sale price declared on the package.

Pan masala manufacturers need to apply for a new registration under the Health and National Security Cess Law from 1 February.

Manufacturers of such products will have to install a functional CCTV system covering all packing machines and preserve the footage for at least 24 months.

They will also have to disclose to the excise authorities the number of machines and their capacities, and can claim an abatement of excise duty if a machine is non-functional for a minimum of 15 consecutive days.

The proceeds from excise duty on tobacco products will be redistributed among states as per the Finance Commission recommendations. The Centre's tax revenues form part of the divisible pool, and 41% of it is shared among the states.

Besides, the proceeds from the cess levied on the production capacity of pan masala manufacturing units will be shared with states through health awareness or other health-related schemes/activities.

GST Council

The levy of such a cess on pan masala and excise duty on tobacco was approved by Parliament in December. The GST Council, comprising finance ministers from the Centre and states, had in September 2025 decided on the mechanism to levy cess and excise duty on such products over and above GST once the compensation cess mechanism ended after repayment of loans.

The GST Council had decided that the compensation cess will cease to exist after the repayment of loans taken to compensate states for GST revenue loss during COVID. The ₹2.69 lakh crore loan will be repaid by 31 January 2026.

At the time of the introduction of the GST on 1 July 2017, a compensation cess mechanism was put in place for five years till 30 June 2022, to make up for the revenue loss suffered by states on account of GST implementation.

The levy of compensation cess was later extended by four years till 31 March 2026, and the collection is being used to repay the ₹2.69 lakh crore loan that the Centre took to compensate states for the GST revenue loss during the Covid period.