The Centre is preparing to introduce a new set of levies on cigarettes, pan masala and gutkha as the GST compensation cess approaches its sunset period. The move aims to ensure that the overall tax burden on tobacco products remains unchanged once the existing cess framework winds down.
Finance Minister Nirmala Sitharaman is expected to place a fresh proposal before Parliament titled the Health Security National Security Cess Bill, 2025. Alongside this, the government will table an amendment to the Central Excise Act that would create room for higher duties on cigarette and tobacco manufacturers. Both proposals received cabinet clearance in the previous meeting, according to people aware of the deliberations.
Officials said the intent is straightforward. Once the compensation cess expires, there must be no drop in the effective tax rate on tobacco, a category viewed as critical for both public health and revenue. The new legislation will allow the government to impose a cess on manufacturing units and machines involved in the production of specified goods. The accompanying amendment is designed to adjust excise duties where required.
The explanation attached to the bill notes that the proceeds will strengthen resources for national security and public health spending. The Defence Ministry is already projecting an increase of nearly twenty percent in its next budget allocation as it pushes for modernisation across services.
India reworked its GST structure in September, moving to two primary slabs of five percent and eighteen percent. The earlier twenty eight percent category was replaced with a special rate of forty percent for items such as tobacco products, aerated drinks, large cars and personal aircraft. While the compensation cess was eliminated for most goods, it continued for tobacco, where rates ranged from one percent to two hundred ninety percent.
The cess was originally introduced to help states manage revenue losses during the shift to GST. It was supposed to end in 2022 but was extended until March 2026 so that all borrowings undertaken during the pandemic years could be repaid.
