ITC: Impact of Hike in Statutory Tobacco Taxation in Budget 2026

ITC shares came under pressure during the Budget session, falling close to 3%, as investors reacted not to a headline tax hike but to key changes buried in the fineprint.  

December Cigarette Tax Changes Take Effect 

The immediate trigger was the cigarette tax restructuring announced on December 31, which became effective from February 1, 2026. Under the new framework, excise duties were revised to a range of ₹2,050–₹8,500 per 1,000 sticks, along with a 40% GST. 

This materially raises the overall tax burden on cigarettes, reviving concerns around demand slowdown, margin pressure, and the risk of illicit trade.  

Much of this was already priced in, with ITC stock correcting nearly 24% over the past month and eroding close to ₹1 lakh crore in market capitalisation. 

NCCD Hike Adds Policy Overhang 

Adding to investor unease was a statutory change in the National Calamity Contingent Duty (NCCD). The government raised the NCCD rate on tobacco products from 25% to 60%, effective May 1, 2026. 

However, the effective duty will continue at 25% through a notification. This means there is no immediate financial impact, but the move creates room for future tax hikes without legislative changes—keeping tobacco firmly on the government’s revenue radar. 

Business Performance Remains Resilient 

Operationally, ITC’s core business remains steady. In the December quarter, revenue grew 6.2% year-on-year, with cigarette revenues rising 8% and volumes up 7%. Margins dipped to 59.9% due to high-cost leaf inventory, though management expects moderation ahead. 

Read More: Union Budget 2026: Tax Increase Hits Indian Cigarette Companies; ITC, Godfrey Phillips in Focus! 

ITC Share Price Performance  

As of February 04, 2026, at 12:20 PM, ITC share price on NSE was trading at ₹313.10 down by 1.12% from the previous closing price. 

Conclusion 

The recent fall in ITC is driven more by policy uncertainty than structural weakness. Long-term prospects remain intact, but near-term volatility is likely as investors track future taxation signals. 

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