The House has also cleared the Health Security se National Security Cess Bill, 2025, which introduces a dedicated cess on pan masala and other notified sin goods
The Lok Sabha on Wednesday cleared the Central Excise (Amendment) Bill, 2025, paving the way for a new excise structure on tobacco products ahead of the scheduled phase-out of the GST compensation cess. Alongside, the House also approved the Health Security se National Security Cess Bill, 2025, which introduces a dedicated cess on pan masala and other notified sin goods.
The legislative package seeks to ensure that the tax burden on tobacco, pan masala and similar products remains unchanged once the compensation cess, introduced with GST in 2017, is discontinued. Under the revised framework, the Centre will levy a new excise duty on products such as cigarettes, cigars, chewing tobacco, zarda, hookah tobacco and scented tobacco. Duties on cigars, cheroots and cigarettes will range from Rs 5,000 to Rs 11,000 per 1,000 sticks depending on length, while unmanufactured tobacco will attract a 60–70 per cent duty and nicotine-based inhalation products a 100 per cent levy. These will apply over and above the existing 40 per cent GST rate on sin goods.
Revenue from the tobacco excise will flow into the divisible pool shared with states, whereas collections from the proposed health and national security cess will be earmarked for public health programmes and national security spending. The cess will apply to the manufacture of pan masala and other products as notified by the government.
Tobacco and pan masala currently attract 28 per cent GST plus the compensation cess, which was originally meant to run for five years, the period needed to offset state losses from the transition to GST. Although the mechanism was extended until March 2026, its proceeds are now used to repay borrowings taken during the pandemic to compensate states. The GST Council, at its meeting on September 3, 2025, agreed to continue imposing the compensation cess on tobacco and pan masala until all outstanding loans are cleared.
For other luxury and demerit goods, the cess ended on September 22 following rate rationalisation into two GST slabs of 5 per cent and 18 per cent, with a special 40 per cent rate for ultra-luxury items and aerated drinks. The new excise-cess framework is intended to maintain tax parity once the compensation cess is withdrawn, ensuring that sin goods remain heavily taxed.
