The Union government has announced a fresh round of excise duties on cigarettes and other tobacco products, a move that will take effect from February 1, 2026 and is expected to push retail prices higher across categories. The revised levy is part of a broader overhaul of tobacco taxation and will directly impact both consumers and manufacturers.
The Finance Ministry has notified the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines Rules, 2026, which lay down a new excise framework linked to production capacity and product specifications. Under the revised structure, cigarettes will attract an excise duty ranging from ₹2,050 to ₹8,500 per 1,000 sticks, depending on their length and category. This will be levied over and above the existing Goods and Services Tax, raising the total tax outgo on cigarettes and allied products.
The announcement had an immediate effect on equity markets. Shares of ITC, the country’s largest cigarette maker, fell nearly 2 percent, while Godfrey Phillips India declined over 4 percent in early trade. The broader FMCG index also edged lower, reflecting investor concerns around margin pressure and potential demand moderation following the price increase.
From February 2026, cigarettes and pan masala will continue to attract 40 percent GST, in addition to the newly introduced excise duty. Bidis will remain under a lower 18 percent GST slab, with duties applied as per existing norms. Other tobacco products such as chewing tobacco, gul and gutkha will be taxed at 40 percent GST along with excise duty and a Health and National Security Cess. The new cess will replace the current compensation cess, which will be withdrawn once the revised regime comes into force.
The legislative backing for the new taxes was cleared by Parliament in December through two reform bills. Officials say the changes are aimed at curbing tobacco consumption, improving revenue collections and streamlining the indirect tax structure. With prices set to rise, industry watchers expect shifts in buying behaviour, particularly in premium segments, even as companies reassess pricing and volume strategies in a tighter regulatory environment.
