GST Council sets tobacco tax transition timeline
The GST Council has decided that from September 22, 2025, the extra compensation cess on most luxury and "sin" goods will be gone—but not for tobacco products just yet.
Cigarettes, pan masala, gutkha, and similar items will keep their extra tax until all pandemic-era loans are repaid, which should wrap up by December 2025.
Right now, these products face hefty indirect taxes thanks to GST, excise duty, and the compensation cess.
Transition to simpler taxes
Once those loans are settled, most tobacco products will drop to a 40% GST rate, with no more compensation cess, except for bidi, which will be taxed at 18%.
The final call on when this happens rests with the Union finance minister.
This shift means simpler taxes and marks the end of special pandemic funding—though states have relied on this revenue for health and welfare efforts.
States need new revenue sources
States will need to find new ways to fund health and welfare efforts as this major revenue stream shrinks.
Even so, tobacco taxes will still play a big role in state finances going forward.
If you're curious about how tax rules shape what things cost—and where that money goes—this is one story worth knowing about.