New Delhi: The government has notified a major revamp of the tobacco tax regime that will make cigarettes and other tobacco products significantly costlier from 1 February 2026, as fresh excise duties come into force alongside the existing Goods and Services Tax (GST).
Under the revised structure, additional excise duty ranging from ₹2,050 to ₹8,500 per 1,000 sticks will be levied on cigarettes based on their length and category, over and above the 40 % GST applicable to most tobacco products. This represents the first substantive overhaul of tobacco excise taxation since the introduction of GST in 2017 and is designed to address rising public health costs and historical revenue leakages in the sector.
The Centre has also abolished the GST compensation cess on tobacco products, rationalised GST slabs to 18 % for bidis and 40 % for cigarettes and related products, and introduced machine-capacity-based excise levies on smokeless tobacco variants like chewing tobacco, gutkha and jarda scented tobacco under newly notified rules.
Preliminary estimates suggest cigarette prices could rise 15 – 40 % in retail markets, particularly for longer and premium variants, as producers recalibrate pricing ahead of the February deadline.
Financial markets have already priced in the implications of the fresh duties. Shares of major tobacco firms such as ITC and Godfrey Phillips India tumbled sharply following the announcement, reflecting investor concerns about potential volume declines and margin pressures in core cigarette businesses.
All measures will take effect from 1 February 2026, giving manufacturers and distributors a transition period to update pricing, compliance systems and production plans ahead of the expected cost increases.