Government Set to Introduce New GST Bills on Pan Masala and Tobacco

The Winter Session of Parliament is beginning with important tax-related proposals. On 1 December, the government is expected to introduce new bills aimed at changing the way pan masala, cigarettes and other tobacco products are taxed under the Goods and Services Tax (GST).

New Bills Coming Up in Lok Sabha

The finance minister will place two key bills before the Lok Sabha — the Central Excise Amendment Bill, 2025, and the Health Security Se National Security Cess Bill, 2025. Another bill will be moved to amend the Manipur GST Act, 2017.

These bills form part of a larger plan to restructure GST, known as GST 2.0, which was approved earlier this year. One of the main goals is to create a new system for taxing “sin goods”, mainly products that are harmful to health such as tobacco and pan masala.

Why Are These Changes Needed?

At present, cigarettes, pan masala, gutkha and other tobacco items attract 28% GST plus a compensation cess and additional duties. Together, this pushes the overall tax burden to more than 50%. However, under GST rules, the tax rate itself cannot go beyond 40%.

To keep the total tax burden on these products the same as before, the government plans to introduce a new cess. This cess will replace the existing compensation cess, which is being phased out after loan and interest repayments linked to GST compensation are completed.

What Will Change Under GST 2.0?

The GST Council has already agreed to replace the old 28% GST slab with a higher 40% rate for specified sin and ultra-luxury products. Another major change is the method of calculating GST. Instead of taxing the transaction value, GST will now be levied on the retail sale price for pan masala, gutkha, cigarettes, unmanufactured tobacco and similar goods.

This shift aims to ensure transparency and uniformity in taxation, while also preventing under-reporting of value by manufacturers.

Most of the GST 2.0 rate changes took effect on 22 September. However, the new taxation rules for tobacco products will be notified later, after all compensation cess obligations are fully settled.

Read more: RBI MPC Schedule 2025: Market Experts Anticipates Another Rate Cut.

Conclusion

The introduction of these bills marks an important step in India’s move towards a more streamlined and transparent GST structure. By revising tax rates and introducing a new cess, the government aims to maintain the overall tax burden on sin goods while simplifying the system. The upcoming parliamentary discussions will decide how soon these changes take effect and how they will shape the market for tobacco and related products.

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