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

The Union Budget 2026 introduced several tax changes that directly affect the Indian tobacco sector, leading to a noticeable decline in the share prices of major cigarette manufacturers. 

Key Tax Changes in Budget 2026 

The budget increased the National Calamity Contingent Duty (NCCD) on chewing tobacco, jarda scented tobacco and related products to 60% from 25%, effective May 2026. The Goods and Services Tax (GST) on tobacco products was raised to 40% from 28% starting February 1, 2026.  

The Basic Excise Duty (BED) was replaced with a levy of ₹2,100 to ₹8,500 on the retail sales price, replacing the previous charge of ₹5 to ₹10 per 1,000 sticks. Overall tax incidence on cigarettes is now projected to lie between 40 to 50%. 

Impact on Cigarette Stock Prices 

Following the announcement, the share price of ITC fell by around 15% and Godfrey Phillips fell by more than 12% over the subsequent month.  

The combined effect of higher GST, increased NCCD and the new BED structure has triggered a sell‑off in the sector, reflecting investor concerns over reduced profitability and potential volume contraction. 

Potential Pricing Adjustments by Manufacturers 

To offset the higher tax burden, manufacturers may need to raise retail prices by 25 to 40%. Such price hikes could affect consumer affordability, potentially encouraging illicit trade and altering market dynamics. The increased cost pressure is expected to compress margins and limit volume growth in the near term. 

Read More: ITC Share Price in Focus as New Cigarette Tax Kicks In; Stock Sees Worst January Ever! 

Conclusion 

Budget 2026 introduces a substantial rise in GST, NCCD and BED for tobacco products, resulting in a sharp decline in cigarette stock prices and signalling a challenging operating environment for manufacturers. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.