New Excise Duty on Tobacco and Health Cess on Pan Masala Effective February 1, 2026

The government has announced a revised taxation framework for tobacco and pan masala, set to take effect from February 1, under which fresh statutory levies will be imposed alongside the existing GST structure.  

The move is aimed at tightening compliance, plugging revenue leakages and strengthening collections from these segments, which have historically faced issues related to under-reporting and valuation.  

While GST will continue to apply as before, the additional levies are expected to raise the overall tax burden on manufacturers and distributors, potentially leading to higher retail prices and impacting demand as well as margins. 

Revised Tax Structure 

From February 1, pan masala, cigarettes, tobacco and similar products will attract a 40% GST, while biris will continue to be taxed at 18% GST, as per a government notification.  

These changes introduce additional excise duty on tobacco products and a new Health and National Security Cess on pan masala, replacing the existing GST compensation cess on such sin goods. 

These GST rates will remain unchanged; however, the new levies will be imposed over and above GST. Tobacco and allied products will face an additional excise duty, whereas pan masala will be subject to a separate Health and National Security Cess.  

The current compensation cess, levied at varying rates, will be discontinued from the same date. 

Regulatory and Legislative Developments 

The Finance Ministry has also notified the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026, which set out the mechanism for assessing production capacity and collecting duty from manufacturers.  

These measures follow Parliament’s approval in December of two Bills enabling the levy of the new cess on pan masala manufacturing and excise duty on tobacco products, with February 1 confirmed as the implementation date. 

Read More: GST Rate Revised: Know Which Items Get Cheaper and Costlier, Electronics, Auto and Life Insurance! 

Conclusion  

The revised tax framework marks a significant shift in the government’s approach to taxing sin goods. While GST rates remain unchanged, the introduction of additional excise duty on tobacco and a Health and National Security Cess on pan masala aims to strengthen revenue and regulatory oversight from February 1. 

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