By: The Trek News Desk
The Lok Sabha on Wednesday (December 3, 2025) passed a key bill that paves the way for higher excise duties on tobacco and related products once the GST compensation cess comes to an end. The move is expected to give the government additional fiscal flexibility to revise tobacco taxes.
The Central Excise (Amendment) Bill, 2025, was passed by voice vote in the lower house. Once enacted, the law will allow the government to determine new excise duty rates on a wide range of tobacco items, including cigarettes, chewing tobacco, cigars, hookah, zarda, and scented tobacco.
Proposed Excise Rates: Tobacco Tax Set to Rise Sharply
Currently, tobacco products attract a 28% GST along with a variable compensation cess. The new legislation will replace the cess with an excise structure, including:
- Unmanufactured tobacco: 60–70% excise duty
- Cigars and cheroots: 25% or ₹5,000 per 1,000 sticks, whichever is higher
- Cigarettes: ₹2,700–₹11,000 per 1,000 sticks, based on length and filter
- Chewing tobacco: ₹100 per kilogram
The government will amend Section IV of the Fourth Schedule of the Central Excise Act, 1944, to update tariff rates across all tobacco products.
Why Were Excise Duties Reduced Earlier?
When GST was introduced on July 1, 2017, central excise duties on tobacco were sharply cut to accommodate the new compensation cess without significantly increasing the tax burden.
The compensation cess was initially designed for five years to offset state revenue losses and was later extended until March 31, 2026, to repay the ₹2.69 lakh crore loan the Centre took during the COVID period to support states.
Finance Minister’s Statement: Debt Repayment Nears Completion
Finance Minister Nirmala Sitharaman told the Lok Sabha, “Within the next couple of weeks, the loans will be fully repaid. The Centre wants to ensure excise powers return so that the appropriate duty rates can be implemented.”
Once the loans are settled, the GST compensation cess will end, and the new excise framework will come into effect.
Why This Change Matters
- Provides the government with additional revenue from tobacco products
- Compensates for potential revenue shortfalls after the cessation of GST compensation cess
- Strengthens policies aimed at controlling tobacco consumption
The bill will now move to the Rajya Sabha for approval before being sent to the President for assent.
