India will start imposing higher taxes on tobacco products and pan masala from February 1, 2026, after the Union government notified a new excise duty and cess structure, replacing the existing GST compensation cess, news agency PTI reported.
The decision marks a major shift in the taxation regime for so-called “sin goods”. As per a notification issued late Wednesday, the new levies will be charged over and above the applicable Goods and Services Tax (GST).
From February 1, pan masala, cigarettes, tobacco and similar products will attract a GST rate of 40 per cent, while biris will continue to be taxed at 18 per cent under the GST framework.
In addition to GST, pan masala will be subject to a Health and National Security Cess, while tobacco and tobacco-related products will face an additional excise duty, according to notifications issued by the Finance Ministry. These levies will replace the GST compensation cess, which is currently imposed at varying rates on tobacco and pan masala.
The Finance Ministry has also notified the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026. The new rules outline the process for assessing production capacity and collecting duty from manufacturers, signalling tighter regulatory oversight of the sector.
The move follows Parliament’s approval in December of two Bills that cleared the way for levying the Health and National Security Cess on pan masala and an additional excise duty on tobacco products. With legislative approval in place, the Centre has now fixed February 1, 2026, as the implementation date.
As part of the transition, the GST compensation cess on tobacco and pan masala will be withdrawn from the same date. The compensation cess was originally introduced to offset revenue losses faced by states after the rollout of GST.
By replacing the compensation cess with a combination of cess and excise duty, the Centre has reworked the tax structure while keeping the overall tax burden high on products considered harmful to public health. The new regime is expected to impact manufacturers, pricing and consumption patterns once it comes into effect early next year.