New Tax Framework Proposed as GST Compensation Cess Nears End

Central Excise Amendment Bill 2025 to Reshape Tax Structure on Tobacco & Pan Masala

The Union government is preparing to introduce the Central Excise Amendment Bill 2025 , a move expected to redefine the taxation landscape for tobacco and related demerit products. With the GST compensation cess scheduled to end in March 2026 , the legislation aims to ensure continued high tax incidence on products such as cigarettes, hookah tobacco, gutka and chewing tobacco—sectors traditionally taxed to discourage consumption.

Replacing Cess With a Permanent Revenue Model

The amendment seeks to grant the Centre authority to levy and revise excise duties to fill the impending revenue gap that will emerge after the compensation cess is withdrawn. Currently, tobacco products are taxed through a combination of GST and compensation cess. Under the new framework, the structure will shift to GST plus central excise duty , allowing the government to maintain collections without volatility.

Transition to a Higher GST Bracket for Sin Goods

In line with ongoing GST rationalisation, the highest slab of 28% is being re-examined. A proposed 40% GST bracket is expected to cover ultra-luxury and demerit goods, including tobacco. This transition ensures taxation remains stringent while providing policy uniformity across states and industries.

New Cess for Pan Masala and Allied Products

Separately, the government plans to introduce the Health Security-cum-National Security Cess , applicable to pan masala and other notified commodities. This levy will operate alongside GST and will require manufacturers to submit machinery-based self-declarations for valuation, ensuring transparency in production capacity and tax calculation.

Exam-Oriented Points

• Central Excise Amendment Bill 2025 replaces GST compensation cess on tobacco goods.

• Tobacco products to be taxed under GST + Excise Duty , not GST + cess.

• 40% GST slab proposed for ultra-luxury & sin goods.

• New Health Security-cum-National Security Cess applicable to pan masala.

• Cess proceeds to support public health and national security initiatives .