Sitharaman Introduces 2 Bills in LS to Levy Excise Duty on Tobacco, Cess on Pan Masala

According to the objectives and justifications of the bill, the bill aims to “provide fiscal space to the government to increase the rate of central excise duty on tobacco and tobacco products in order to safeguard tax events” once the GST compensation cess ends.

The Health Security and National Security Tax Bill, 2025 aims to impose tax on the production of certain goods such as pan masala. The government may notify other goods whose production may be subject to such a cut.

Sin goods such as tobacco and pan masala currently benefit from a 28 per cent GST in addition to a compensation cess applicable at various rates. The central excise amendment bill aims to impose excise duty on cigars/cigars/cigarettes in the range of Rs 5,000 to Rs 11,000 per 1,000 sticks. It also proposes a 60-70 percent tax on unprocessed tobacco and a 100 percent tax on nicotine and inhalation products.

Currently, cigarettes attract a compensation cut of 5 per cent per value plus Rs 2,076-3,668 per 1,000 sticks, depending on length. Once the compensation ends, sales of tobacco and related products will attract 40 per cent GST plus excise duty, while pan masala will attract 40 per cent GST plus Health Safety and National Security Duty.

“It is proposed to tax the Health Security and National Security Levy in order to contribute to the twin objectives of ensuring targeted use for public health as well as national security,” the bill’s statement of objects and reasons stated. It was said.

TMC member Saugata Ray opposed the introduction of the two bills, saying tobacco is harmful, but there is no mention of this in the Central Excise (Amendment) Bill. Regarding the Health Care Homeland Security Tax Bill of 2025, Ray said he opposed the bill because withholding revenues are not shared with the states.

On July 1, 2017, when the GST was implemented, a compensation deduction mechanism was put in place for 5 years until June 30, 2022, in order to compensate for the revenue losses suffered by the states due to the implementation of the GST.

The compensation cess was later extended for four years till March 31, 2026, and the collection is being used to repay the loan taken by the Center to compensate states for GST revenue loss during the Covid period.

Since this loan repayment will be fully repaid in December, the compensation deduction will end. On September 3, 2025, the GST Council had decided to continue the compensation deduction on tobacco and pan masala until the loans taken are repaid.

For other luxury goods, the compensation cut ended on September 22, when the rationalization of the GST rate was implemented with only two slabs of 5 per cent and 18 per cent. A rate of 40 percent was set for ultra-luxury goods, carbonated drinks and other disadvantaged goods.

The Central Excise Duty Amendment Bill, 2025 and the Health Security and National Security Duty Bill, 2025 will ensure that the tax rate on sin goods such as tobacco and pan masala remains the same after the termination of compensation cess.