📢 Major Tax Changes for Tobacco & Pan Masala Sector – Effective from 1 February 2026

01Jan 2026 by admin

📢 Major Tax Changes for Tobacco & Pan Masala Sector – Effective from 1 February 2026

Background

Pursuant to the GST rate realignment for tobacco and pan masala products notified in September–December 2025, the Government has undertaken a comprehensive restructuring of indirect taxes on tobacco products. This includes:

  • Rationalisation of GST rates,
  • Withdrawal of GST Compensation Cess,
  • Re-introduction of Central Excise Duty, and
  • Introduction of a new Health & National Security Cess.

All these changes come into force from 1 February 2026.

🔹 1. GST Rate Realignment (Notification No. 19/2025 – Central Tax (Rate))

  • Biris brought under 9% + 9% GST (18%)
  • Pan masala, unmanufactured tobacco, cigarettes, smoking tobacco, vaping products, etc. shifted to 20% + 20% GST (40%)
  • Schedule VII (14%) omitted

📌 This marks a clear classification of tobacco products as “sin goods” under the highest GST slab.

🔹 2. GST Compensation Cess – Phased Out

  • GST Compensation Cess on tobacco products is discontinued.
  • To ensure revenue neutrality, the levy has been replaced through Excise Duty and a new cess.

🔹 3. Re-introduction of Central Excise Duty (Central Excise Amendment Act, 2025)

  • The Central Excise (Amendment) Act, 2025 is made effective from 1 February 2026.
  • Tobacco products are once again subject to Central Excise Duty, over and above GST.

🔹 4. Capacity-Based Excise Levy on Chewing Tobacco, Jarda & Gutkha

(Notification Nos. 03/2025, 04/2025 & 06/2025 – Central Excise)

  • Chewing tobacco (including filter khaini), jarda scented tobacco and gutkha, manufactured using packing machines and packed in pouches, are notified under Section 3A of the Central Excise Act.
  • Excise duty is machine-based, determined on:
    • Number of packing machines,
    • Maximum rated speed (pouches per minute),
    • Retail Sale Price (RSP).
  • Actual production is irrelevant; duty is payable on deemed production capacity.
  • Monthly duty per machine ranges from â‚ą0.83 crores to â‚ą18+ crores, depending on RSP and machine speed.
  • Form CE-DEC-01 declaration mandatory by 7 February 2026.
  • CCTV installation compulsory.
  • Abatement available only if machines are sealed for ≥15 days with prior intimation.

🔹 5. Introduction of Health Security Se National Security Cess

(Health Security Se National Security Cess Act, 2025)

  • A new cess titled “Health Security Se National Security Cess” is introduced.
  • The Act is notified to come into force from 1 February 2026.
  • This cess applies to specified tobacco and pan masala products, primarily to:
    • Fund public health initiatives, and
    • Support national security expenditure.

🔹 6. Overall Tax Structure from 1 February 2026

ComponentApplicability
GST18% or 40% depending on product
GST Compensation Cess❌ Withdrawn
Central Excise Dutyâś… Re-introduced
Machine-based Excise Levyâś… Applicable to chewing tobacco, jarda & gutkha
Health & National Security Cessâś… Newly introduced

đź“Ś Key Takeaway for Industry

The Government has shifted the tax burden from GST Compensation Cess to Excise and a new Cess regime, ensuring:

  • High and predictable revenue,
  • Stricter compliance through machine-based controls, and
  • Continued deterrent taxation on tobacco and pan masala products despite GST rationalisation.