Cigarettes to get costlier as India imposes new excise duty
What's the story
The Indian government has announced an excise duty on cigarettes, effective February 1. The new tax will be levied at ₹2,050-8,500 per thousand sticks depending on the length of the cigarettes. The move is expected to raise cigarette prices for around 10 crore smokers in India, the world's most populous country.
Legislative change
New law replaces temporary levy on tobacco products
In December, the Indian government had approved a new law—the Central Excise (Amendment) Bill 2025. The legislation replaces a temporary levy on cigarettes and other tobacco products with the new excise duty. The finance ministry's recent order confirmed that the excise duty would be applicable to cigarettes in addition to the existing 40% Goods and Services Tax (GST).
Tax breakdown
Current tax structure on cigarettes in India
Currently, the total tax on cigarettes in India accounts for about 53% of retail prices. This includes GST and an additional value-based levy depending on the size of the cigarettes. However, this is still lower than the World Health Organization's recommended benchmark of 75%, which is aimed at discouraging consumption.
Market implications
Impact of higher duties on cigarette manufacturers
The imposition of higher duties is likely to affect the sales numbers of cigarette manufacturers such as ITC and Godfrey Phillips India. The new tax regime could push up retail prices, potentially leading to a decline in demand for cigarettes. This could have implications for the Indian tobacco industry and its major players.