India proposes new cess structure on pan masala, tobacco products
The Indian government has proposed two major tax reform bills to revamp indirect taxes on tobacco products and pan masala. Finance Minister Nirmala Sitharaman introduced the Central Excise (Amendment) Bill, 2025, and the Health Security se National Security Cess Bill, 2025. The bills propose a restructuring of excise duties and cesses applicable to these products.
Proposed excise duty changes under new bills
The Central Excise (Amendment) Bill, 2025, seeks to revise excise duties on cigarettes, cigars, and gutka. The proposed duty on cigarettes will be between ₹2,700 and ₹11,000 per thousand sticks. However, these changes will only come into effect after the Centre completes repayment of back-to-back loans taken to compensate states for GST revenue losses during COVID-19.
GST rate hike and new cess structure
After the loan repayment, the GST rate on these products will be hiked from 28% to 40%. The Health Security se National Security Cess Bill proposes a cess on pan masala based on production capacity. This cess will not be shared with states and will be used by the Centre for health and national security purposes.
Cess payment and penalties for pan masala producers
Producers of pan masala will have to self-declare their production capacity for cess calculation and pay it monthly by the seventh day of every month. Delayed payments will attract a 15% interest rate along with penalties. An abatement is allowed if machines remain shut for at least 15 days. The bills also detail how the cess on pan masala will be computed based on machine output capacity.
Current GST rates and compensation cess on tobacco products
Currently, tobacco products and pan masala attract a 28% GST along with a compensation cess ranging from 5% to 290%, depending on the product's nature and form. The new bills are likely to replace this compensation cess regime, which was extended till March 31, 2026, for loan repayment related to COVID-19 revenue shortfalls.