Cigarettes Prices Rise: From February 1, cigarettes and pan masala have officially become more expensive across India as the Centre rolled out new excise duties and a health cess under the Union Budget 2026 framework. The move marks a major shift in how so-called “sin goods” are taxed, following the end of the GST compensation cess regime.
The revised taxation structure is expected to impact retail prices immediately, particularly for cigarette smokers and users of chewing tobacco and pan masala products.
Why Cigarettes Prices Have Increased
The government has introduced:
- An additional excise duty on cigarettes and tobacco products
- A health and national security cess on pan masala
These levies come over and above the existing 40% GST, effectively replacing the earlier 28% GST plus compensation cess that had been in place since GST was implemented in July 2017.
This change follows the repayment of ₹2.69 lakh crore in loans taken by the Centre to compensate states for GST revenue losses during the COVID-19 period.
Cigarette Prices: New Excise Duty Explained
How Cigarettes Will Be Taxed Now
Under amendments to the Central Excise Act, cigarette excise duty will now be calculated per stick, based on the length and category of the cigarette.
New Excise Duty Rates on Cigarettes
| Cigarette Category | Additional Excise Duty (per stick) |
|---|---|
| Short non-filter (up to 65 mm) | ₹2.05 |
| Short filter (up to 65 mm) | ₹2.10 |
| Medium length (65–70 mm) | ₹3.6 – ₹4 |
| Long / premium (70–75 mm) | ₹5.4 |
| Non-standard designs | ₹8.50 |
The highest slab of ₹8.50 per stick applies only to unconventional cigarette designs and is unlikely to affect most mainstream brands.
Pan Masala and Chewing Tobacco: What’s New
Health Cess Introduced
Pan masala will now attract a health and national security cess, calculated based on the manufacturing capacity of production units.
Despite the new cess, the overall tax burden on pan masala remains unchanged at 88%, including GST.
Revised Tax Rates on Other Tobacco Products
- Chewing tobacco: 82% excise duty
- Jarda-scented tobacco and gutkha: Up to 91% excise duty
New MRP-Based Valuation System from Feb 1
A major procedural change also comes into effect from today.
What Is Changing?
For products such as:
- Chewing tobacco
- Filter khaini
- Jarda-scented tobacco
- Gutkha
GST will now be calculated based on the Maximum Retail Price (MRP) printed on the package, instead of earlier valuation methods.
This move aims to improve transparency and curb tax evasion.
Stricter Rules for Manufacturers
Pan masala manufacturers must now:
- Apply for fresh registration under the Health and National Security Cess Act
- Install functional CCTV cameras covering all packing machines
- Preserve footage for at least 24 months
- Declare the number and capacity of packing machines to excise authorities
Manufacturers can claim excise duty relief if a machine remains non-functional for 15 consecutive days or more.
How States Will Benefit
Revenue collected through:
- Excise duty on tobacco, and
- Health cess on pan masala
will be shared with states as per Finance Commission recommendations.
Of the Centre’s divisible tax pool, 41% is allocated to states, while cess proceeds will be routed toward health awareness and public health initiatives.
GST Council’s Role in the Decision
The GST Council approved the new cess and excise framework in September 2025, following Parliament’s clearance in December.
With the compensation cess officially ending on January 31, 2026, the new mechanism ensures continued revenue for states without extending the earlier system.