India to levy excise duty on tobacco products, including cigarettes, from February 1

The government has imposed additional excise duty on tobacco products from February 1, 2026, a move that will make cigarettes costlier for an estimated 10 crore smokers in India.

Late on Wednesday, the finance ministry notified the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026. Under the new regime, excise duty on cigarettes will range from ₹2,050 to ₹8,500 per 1,000 sticks, depending on their length, effective February 1.

Shares of India’s leading cigarette manufacturers fell sharply after the announcement, as the additional excise duty comes on top of the existing 40% Goods and Services Tax (GST). ITC, the maker of Gold Flake and Classic cigarettes and the market leader, fell 2%, while Godfrey Phillips India, which distributes Marlboro cigarettes in India, slid 4.1%. ITC emerged as the top loser on the Nifty 50 index and also led declines on the FMCG index, which was down 0.6%.

Cigarette taxation framework

The new excise duty applies to tobacco products including pan masala and cigarettes, in addition to the 40% GST. It replaces the GST compensation cess, which has been scrapped as part of the government’s broader effort to rationalise the indirect tax regime in the world’s fourth-largest economy.

From February 1, 2026, tobacco products such as pan masala and cigarettes will continue to attract 40% GST, while bidis will be taxed at 18%. In addition, a Health and National Security Cess will be levied on pan masala, and tobacco and related products will face the newly imposed excise duty.

Parliament approved the required legislation in December, clearing two bills that allow the levy of the Health and National Security Cess on pan masala manufacturing and excise duty on tobacco products.

The government has now formally notified February 1, 2026, as the implementation date. The existing GST compensation cess, currently levied at varying rates, will cease to apply from that day.