GST on Cigarettes, Pan Masala and Gutkha - Impact of GST Rate on the Tobacco Industry

The tobacco industry in India remains one of the largest worldwide, with over 275 million users despite severe health risks. To curb consumption, the government imposes heavy taxes on tobacco products. The 56th GST Council meeting (3rd September 2025) in New Delhi and additional cess with effect from 1st February 2026 reinforced this stance. This article explains GST on cigarettes, the rates on tobacco products, and the additional duties and cess imposed.

Key Takeaways

• Tobacco products, including cigarettes, pan masala, gutkha, and chewing tobacco, will attract 40% GST starting from 1st February 2026, as per Central Tax (Rate) Notification No. 19/2025.
• The GST rate for Biris has been reduced from 28% to 18%, effective from the same date.
• CBIC has imposed additional excise duty ranging from Rs.2,050 to Rs.8,500 per 1000 sticks from 1st February 2026, varying as per the cigarette length.
• New RSP-Based Valuation: Starting 1st February 2026, GST for notified tobacco goods will be calculated based on the Retail Sale Price (RSP) printed on the package, regardless of the actual transaction price

Impact of GST on the Tobacco Industry

The tobacco industry attracts Central Excise duty, National Calamity Contingent Duty (NCCD), GST, and compensation cess as it is a sin good. In fact, a lot of revenue is generated from the sale of tobacco for the Indian government. However, the tax burden levied on the Indian tobacco industry is not enough, as per the recommendation of the WHO for a minimum tax burden of 75% on all tobacco-related products. 

Hence, there has been an increasing demand for a higher tax burden on tobacco manufacturers. The Indian government has constantly been increasing the rate of taxes imposed on cigarettes and tobacco products. In line with this, in Budget 2023, it was proposed that the NCCD rate be revised upwards by 16%. 

The recent update on RSP (Retail Sale Price) based valuation changes how GST is calculated for tobacco products, affecting both manufacturers and consumers. Now, the taxable value for GST purposes is no longer based on the actual sale price between the supplier and the recipient but will be determined by the RSP printed on the package. This will likely impact pricing and GST liability across the tobacco sector.

Let’s take a look at the list of duties and taxes imposed on cigarettes and other tobacco products. Please note that the list of tobacco products in this article is not exhaustive.

GST Rate on Cigarettes and Tobacco products

Starting from 1st February 2026, the Indian government will impose a 40% GST rate on cigarettes and tobacco products, including pan masala, cigars, and hookah. This change is part of the government's ongoing efforts to reduce consumption by increasing taxes on tobacco goods. The Biris rate has been specifically revised to 18%, down from 28%, in line with this update. In addition to GST, the products will also be subject to excise duties and NCCD

Duties and Cesses on Cigarettes and Tobacco products 

Under Central Excise laws, there is excise duty and National Calamity Contingent Duty (NCCD) levied on cigarettes and tobacco products. 

The table below lists the most recent rates of excise duty, NCCD, and compensation cess charged on the manufacture of cigarettes and tobacco products. 

(In rupees per one thousand sticks)

*This rate is valid on cigarettes in length exceeding 65 millimetres but up to 75 millimetres.

**Length of the filter is included in the length of the cigarette, being 11mm or the actual length of the filter, whichever is more.

^#NCCD rates are in force from 02-02-2023, as announced in Budget 2023.

The excise duty on chewing tobacco, preparations containing chewing tobacco, snuff, hukkah or gudaku tobacco, tobacco extracts and essence, and jarda-scented tobacco is 0.5%. The excise duty on cigarillos of tobacco substitutes is 1%.

It is important to note that Central Excise and NCCD are calculated on the abated value (where abatements are given under the Central Excise Act), whereas GST and compensation cess are computed on the transaction value (after including excise duty and NCCD). No abatement is given for tobacco products under the GST law. 

Conclusion:

Tobacco products continue to face heavy taxation, with an increased 40% GST rate for most products and a reduction to 8% for Biris. The introduction of RSP-based valuation from 1st February 2026 will standardize the GST calculation process, making it less dependent on actual sale prices and more on the printed Retail Sale Price (RSP). Additionally, the Health Security se National Security Cess will help fund public health and security initiatives, but tobacco products will now attract revised excise duties under the new regime. These tax increases are expected to discourage consumption, although the overall impact on pricing and consumption remains to be seen