Tobacco Excise Duty From February 1, 2026: Government Freezes Compensation Cess and Introduces New Health & National Security Cess
Background: Policy Shift in Indirect Taxation on Tobacco and Cigarettes The Government of India has notified that, effective 1 February 2026, additional excise duty will be imposed on tobacco products, including cigarettes, alongside the ongoing Goods and Services Tax (GST) regime. The notification follows the decision of the 56th GST Council to phase out the GST Compensation Cess framework and restructure taxation on sin goods such as cigarettes, chewing tobacco, gutkha, and pan masala. This restructuring ensures that revenue neutrality is maintained even after the withdrawal of the compensation cess mechanism. Introduction of Additional Excise Duty on Cigarettes and Tobacco Products From 1 February 2026, excise duty will be levied on tobacco products on top of the existing GST rate. The Finance Ministry has notified the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026. Under the new excise structure: Additi...