Prices of Gutkha, Cigarette and other tobacco products are set to increase as the new Central Excise duty comes into force from 1 February 2025. The Ministry of Finance has issued a series of notifications to implement a major shift in tobacco taxation, effective February 1, 2026. This new regime, established under the Central Excise (Amendment) Act, 2025, replaces the current GST compensation cess with a combination of high excise duties and a new health-focused cess.
The government also brought a notification to impose the new duty on Gutkha and related products.
The government has significantly revised the excise duty rates for a wide range of tobacco products to maintain high tax incidence after the compensation cess ends. Gutkha now carries the highest duty at 91%, chewing tobacco and jarda scented tobacco will attract 82% duty.
In case of Cigarettes, rates vary by length and filter type, ranging from Rs 2,050 to Rs 8,500 per thousand sticks. Pipe and cigarette smoking mixtures attract a massive 279% duty. However, in order to protect the workers engaged in the sector, the government has maintained a lower duty of Rs 1 per thousand on Handmade bidis. These rates would be levied over and above 40% GST. Earlier, the GST on all sin goods was 28%.
Meanwhile, the tobacco industry has voiced concern over such high rates of taxes.
Tobacco Institute of India (TII) in a statement said that it is shocked and surprised to note the unprecedented increase in duty given the statements made by the government on more than one occasion, that the overall impact of the transition of taxes will be revenue neutral.
“Such a massive increase will cause immense hardship and loss to millions of farmers, MSMEs, retailers and local value chains nurtured by the Industry, besides providing a huge fillip to Illicit Industry and damaging national enterprises,” it said.
The new rules also specify capacity-based duty for gutkha and smokeless tobacco. For manufacturers of chewing tobacco and gutkha, the duty is now tied directly to the speed and number of packing machines in a factory. Taxation is based on the maximum capacity of production per machine. For example, a machine producing gutkha at a speed of 500 pouches per minute with a retail price of Rs 8 carries a monthly duty of Rs 3.28 crores.
To curb tax evasion, the Ministry has introduced rigorous monitoring requirements. Manufacturers must install functional CCTV systems covering all packing areas and preserve footage for 48 months.
All manufacturers must file a detailed declaration (Form CE DEC-01) by February 7, 2026, outlining their production factors and machine technical specs.
Machine speeds and gearbox ratios must be certified by a Chartered Engineer using Form CE CCE-01. No notified tobacco goods can be exported without the prior payment of duty.