New Delhi, Dec 2 (UNI) The Central Excise (Amendment) Bill, 2025, aimed at replacing the existing GST compensation cess on tobacco products and revising excise duties, is slated for passage in the Lok Sabha on Tuesday. Introduced on December 1, the bill seeks to amend the Central Excise Act, 1944, which governs the levy of excise duties on goods manufactured in India.
Since the rollout of the Goods and Services Tax (GST) in 2017, many central excise duties were repealed except on select items like tobacco and tobacco products. To compensate states for revenue losses due to GST, a GST compensation cess was also levied on tobacco products, resulting in these items being subject to GST, compensation cess, and central excise duty concurrently. The proposed bill plans to discontinue the compensation cess while increasing central excise duties to maintain the current tax burden on tobacco products.
Significant increases in duty rates are proposed. For example, the duty on unmanufactured tobacco such as sun-cured leaves will rise from 64 pc to 70 pc. Excise duty per thousand cigarettes, which currently ranges between Rs 200 and Rs 735, will see a dramatic hike, proposed to range from Rs 2,700 to Rs 11,000.
Manufactured tobacco products will also face higher duties. The levy on chewing tobacco is set to increase fourfold from 2 pc to 100%. Similarly, duties on hookah or gudaku tobacco will rise from 25 pc to 40 pc, and the duty on smoking mixtures for pipes and cigarettes will jump from 60 pc to 325 pc.
The bill’s passage marks a major policy step in tobacco taxation, aiming to balance fiscal needs with public health objectives by discouraging tobacco consumption through higher prices while stabilizing state revenues. The government’s move comes amid ongoing efforts to rationalize indirect taxes and refine the regulatory framework surrounding tobacco products in India.
In the Object and Reasons of the bills, Sitharaman explained that the Central Excise (Amendment) Bill would “give the government the fiscal space to increase the rate of central excise duty on tobacco and tobacco products so as to protect tax incidence,” following the eventual discontinuation of the compensation cess once liabilities are cleared. The bill covers various tobacco products, including cigarettes, chewing tobacco, cigars, hookahs, zarda, and scented tobacco.
Since the introduction of the Goods and Services Tax (GST) in 2017, the Central Excise Act, 1944, was repealed except for specific goods like tobacco. To maintain revenue neutrality and fiscal balance, compensation cess was levied on tobacco products, necessitating this amendment to adjust excise duty rates accordingly.
