The North News
New Delhi, January 2
The Centre government will sharply raise taxes on cigarettes, pan masala and other tobacco products from February 1, under a new set of measures notified by the Central government. According to the notification, cigarettes, pan masala and similar products will attract a Goods and Services Tax (GST) rate of 40%, while biris will be taxed at 18%. In addition, an extra central excise duty on tobacco products and a new cess on pan masala will also come into force from the same date.
The new levies will be imposed over and above GST and will replace the compensation cess that is currently charged on so-called “sin goods”. Officials say the move is aimed at strengthening revenue collection and tightening control over the tobacco sector. The government has also notified fresh central excise duty rates on tobacco and tobacco products through notifications issued on December 31, 2025. These rates will take effect from February 1, 2026.
Alongside the tax hike, new rules have been introduced to regulate the manufacturing of chewing tobacco, jarda scented tobacco and gutkha. The Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2025 will also come into force on February 1.
Under the new regime, duty will be calculated on the basis of the deemed production capacity of packing machines rather than actual output. Manufacturers producing tobacco in pouches will be required to pay duty based on the maximum rated capacity of their machines and the retail sale price of the product.
Existing manufacturers must file a mandatory declaration, Form CE DEC-01, within seven days of the rules taking effect. The declaration will include details such as the number of machines installed, their technical specifications and the retail sale prices of the products.
Tax officials will physically inspect factories and verify machine specifications before determining the annual production capacity. If the department assesses a higher capacity than what has been declared, manufacturers will be required to pay the differential duty along with interest from February 1, 2026.
The rules also provide for limited abatement if machines remain non-operational for a continuous period of at least 15 days, subject to prior intimation and sealing of machines by the department. However, any installed machine will be treated as operational unless officially sealed.
Manufacturers will be required to install CCTV systems covering all packing machine areas and preserve footage for at least 24 months. Exports of the notified tobacco products without payment of duty will not be permitted under the new capacity-based levy scheme.
