Cigarettes and Gutkha Prices Rise Sharply From February 1 Under New Excise Duties

Prices of gutkha, cigarettes, and other tobacco products are set to rise significantly from February 1, 2026, following the rollout of a new Central Excise duty framework. The Ministry of Finance has issued multiple notifications to implement the Central Excise (Amendment) Act, 2025, which replaces the GST compensation cess with higher excise duties and a new health-focused cess. The move marks a major shift in the government’s approach to tobacco taxation.

Under the new regime, excise duty rates have been sharply increased to ensure a high tax incidence even after the compensation cess ends. Gutkha will attract the highest duty at 91%, while chewing tobacco and jarda-scented tobacco will face an 82% duty. These duties will be levied in addition to the existing 40% GST, substantially increasing the final retail price for consumers.

Cigarette taxation has also been revised, with rates varying based on length and filter type. The excise duty will range from ₹2,050 to ₹8,500 per thousand sticks. Pipe tobacco and cigarette smoking mixtures will attract a steep 279% duty. However, to protect livelihoods in the informal sector, handmade bidis will continue to be taxed at a nominal rate of ₹1 per thousand sticks.

Also Read: Parliament Passes New Tobacco Tax Bill: Cigarettes and Gutkha Set for Steeper Duties

The government has also introduced a capacity-based duty structure for gutkha and smokeless tobacco manufacturers. Tax liability will now depend on the number and speed of packing machines used in a factory, with duty calculated on maximum production capacity. For instance, a single machine producing 500 pouches per minute of gutkha priced at ₹8 per pouch could attract a monthly duty of ₹3.28 crore.

To curb tax evasion, stringent compliance and monitoring measures have been mandated. Manufacturers must install CCTV cameras covering all packing areas and preserve footage for 48 months. Detailed declarations on production capacity and machine specifications must be filed by February 7, 2026, with technical certification from a Chartered Engineer. Export of notified tobacco products will not be allowed without prior payment of duty.

Meanwhile, the tobacco industry has raised strong objections to the steep hike. The Tobacco Institute of India said the increase contradicts earlier assurances that the tax transition would be revenue neutral. The industry warned that such high taxation could hurt farmers, MSMEs, retailers, and legal manufacturers, while encouraging illicit trade and undermining domestic enterprises.

Also Read: Parliament Passes New Tobacco Tax Bill: Cigarettes and Gutkha Set for Steeper Duties