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New Tobacco and Pan Masala Levies to Take Effect from February 1

January 03, 2026

Shift in Taxation Regime for Sin Goods

The Union government has notified 1 February as the date from which a new set of fiscal levies on tobacco products and pan masala will come into force. The move marks a structural shift in the taxation of so-called sin goods, as the existing GST compensation cess framework is withdrawn and replaced with product-specific levies imposed outside the Goods and Services Tax (GST) system.

What Changes from February 1

Under the new regime, tobacco and tobacco-based products will attract an additional excise duty , while pan masala manufacturing will be subject to a newly introduced Health and National Security Cess . These levies will be charged over and above GST , effectively ending the compensation cess that had been in place since the introduction of GST to offset revenue losses of states.

Revised GST Rates

From February 1, cigarettes, pan masala, chewing tobacco and similar products will be taxed at a GST rate of 40 per cent . Biris, however, will continue to attract a significantly lower 18 per cent GST , reflecting policy considerations linked to employment and consumption patterns among lower-income groups. The differentiated structure highlights the government’s attempt to balance public health objectives with socio-economic realities.

Health and National Security Cess

The Health and National Security Cess is designed as a non-GST levy , ensuring that revenues collected are not subject to GST revenue-sharing arrangements. Tobacco products, instead of this cess, will be covered through enhanced excise duties. Both measures aim to discourage consumption of harmful products while creating dedicated revenue streams for public health and national security priorities.

Legislative Backing and Policy Intent

The legal basis for these changes was approved by Parliament of India in December through the passage of two Bills. According to the Government of India , the reforms reflect a broader shift toward targeted taxation of harmful goods, especially as the GST compensation period for states has formally ended.

Important Facts for Exams

  • Compensation cess on tobacco and pan masala is being discontinued

  • GST rate on cigarettes and pan masala is 40%

  • Biris continue to be taxed at 18% GST

  • Health and National Security Cess operates outside GST

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