GST Update: GST on Bidis Reduced to 18%, Cigarettes and Other Tobacco Products Surge to 40%

India’s latest GST restructuring, effective September 22, 2025, brings a significant policy shift for the tobacco sector. While bidis will now attract a lower 18% GST, cigarettes remain under the current system of 28% GST plus compensation cess. The GST Council has deferred migrating cigarettes to the proposed 40% “sin” tax slab until the cess repayment period ends.

GST Cut for Bidis, Relief for Small Manufacturers

Under the updated structure, bidis will be taxed at 18%, down from the previous higher rates, and tendu leaves used as wrappers now attract just 5% GST. The Council’s decision reflects socio-economic considerations, especially in regions where bidi production supports rural livelihoods and small-scale employment.

This move separates bidis from other tobacco products earmarked for eventual inclusion in the 40% demerit slab. It also temporarily shields bidi workers and producers from higher levies that might threaten income in economically vulnerable zones.

Cigarettes Retain Current Regime Pending Compensation Cess Repayment

Cigarettes continue to be taxed at 28% GST plus compensation cess, which comprises both specific and ad valorem components. This structure will remain until the government completes repayment of compensation-cess-related liabilities incurred during the GST transition period.

Read More: GST Reform: Roti, Cancer Drugs, and Classroom Supplies Turn GST-Free from Sept 22!

Transition to 40% Slab Deferred for Tobacco Products

Although the new GST slabs of 5%, 18% and 40% become applicable from September 22, 2025, the Council has delayed applying the 40% sin slab to cigarettes and other tobacco products. 

Once the compensation cess is phased out, cigarettes may shift to the 40% GST rate with an added levy to maintain current tax incidence levels, as per government indications. Authorities expect the compensation cess liabilities to be cleared by the end of this calendar year, after which the 40% GST is likely to be enforced. 

Conclusion

With the new GST structure, bidis benefit from a lower 18% tax rate, while cigarettes stay under the older 28% plus cess model. This dual approach balances public health goals with social and economic realities in bidi-producing regions. A unified higher-tax framework for all tobacco products may follow after compensation cess obligations are fulfilled.

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