New levy comes on top of 40% GST as compensation cess is withdrawn; cigarette stocks slide sharply following the announcement.
The Indian government has announced the imposition of an additional excise duty on tobacco products, including cigarettes, with effect from February 1, 2026. The move is expected to make cigarettes more expensive for nearly 10 crore smokers across the country.
Late on Wednesday, the finance ministry notified the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026. Under the new framework, excise duty on cigarettes has been fixed in the range of ₹2,050 to ₹8,500 per 1,000 sticks, depending on the length of the cigarette.
Cigarette stocks fall after announcement
The announcement had an immediate impact on the stock market. Shares of major cigarette manufacturers declined sharply, with ITC and Godfrey Phillips India falling by as much as 8% intraday.
ITC, the country’s largest cigarette maker and producer of brands such as Gold Flake and Classic, slipped around 2% and emerged as the biggest drag on the Nifty 50 index. Godfrey Phillips India, which distributes Marlboro cigarettes in India, dropped about 4.1%. The FMCG index was trading nearly 0.6% lower, led by losses in cigarette stocks.
What changes under the new tax regime
The newly introduced excise duty will be levied in addition to the existing 40% GST on tobacco products. This replaces the GST compensation cess, which will be discontinued as part of the government’s broader effort to rationalise the indirect tax structure.
From February 1, tobacco products such as cigarettes and pan masala will continue to attract 40% GST, while bidis will be taxed at a lower rate of 18% GST. In addition, a Health and National Security Cess will be levied on pan masala, alongside the new excise duty on tobacco and related products.
Legislative backing
In December, Parliament approved two bills enabling the government to impose the Health and National Security Cess on pan masala manufacturing and levy excise duty on tobacco products. The government has now formally notified February 1, 2026, as the implementation date for these measures, marking the end of the existing GST compensation cess regime.