Government Notifies Higher Taxes on Cigarettes and Sin Goods Under New Excise, Health Cess Regime From February 1, 2026

Key Points:

The Union Ministry of Finance has announced the date from which the Central Excise (Amendment) Act, 2025 and the Health Security se National Security Cess Act, 2025 will come into effect. In a gazette notification issued by the Finance Ministry on December 31, 2025, the aforementioned acts will take place from February 1, 2026.

Amendments To The Previous GST And Levy For Sin Goods

The Acts make amendments to the previous GST and levy laws for sin products such as tobacco and pan masala. From February 1, 2026, the government will impose extra excise duty on tobacco products and introduce a Health and National Security Cess on pan masala, in addition to GST. This replaces the compensation cess and revises tax rates, keeping GST at 40% on pan masala, cigarettes and tobacco, and 18% on biris, marking a major change in sin goods taxation.

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Bills Passed In Winter Session Of Parliament, 2025

The Central Excise (Amendment) Bill, 2025, and The Health Security se National Security Cess Bill, 2025, were introduced by Union Minister for Finance Nirmala Sitharaman in the recently concluded Winter Session of Parliament, 2025. Both the bills were introduced on the first day of the session, December 1, 2025.

The Health Security se National Security Cess Bill, 2025 was passed in Lok Sabha on December 5, 2025, and then subsequently in the Rajya Sabha on December 8, 2025. The Central Excise (Amendment) Bill, 2025 was passed in the Lok Sabha on December 3, 2025, and thereafter in the Rajya Sabha on December 4, 2025.

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Government Pushes Higher Taxes to Reduce Affordability of Sin Goods

The Acts aim to make the sin goods more expensive, and increase the affordability rates as compared to the salary rates. The government says cigarette affordability has increased over the past decade and India’s tobacco tax levels remain below global public health recommendations. It argues that higher taxes are needed to discourage consumption and align with international norms.

The Government of India has justified the duty hikes keeping in mind the WHO recommended rate. As of now, India’s total taxation on cigarettes is approximately 53% of the retail price, which is far too lower than the 75% retail rate as recommended by the WHO. Officials have also stated that cigarette prices have not risen a lot since the GST tax regime came into effect.

Paan masala will also face a 40 per cent GST along with a new Health Security se National Security Cess, keeping the overall tax burden unchanged at 88 per cent. The changes come as the GST compensation cess is set to end in March 2026, prompting the government to restructure tobacco taxation to protect revenue and public health goals.

(GP)

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