Parliament on Thursday approved a landmark amendment enabling the government to levy higher excise duty on tobacco and related products after the expiry of the GST compensation cess. The Rajya Sabha returned the Central Excise (Amendment) Bill, 2025 to the Lok Sabha by voice vote, completing legislative approval a day after it was passed by the Lower House. The bill aims to strengthen public health measures while providing the Centre with additional fiscal space to curb the consumption of tobacco-based products.

During the debate in the Upper House, Finance Minister Nirmala Sitharaman addressed concerns raised by lawmakers and elaborated on the provisions of the bill. She underlined the government’s long-standing efforts to reduce tobacco dependency by encouraging farmers to shift to alternative cash crops. Sitharaman informed Parliament that states including Andhra Pradesh, Karnataka, Maharashtra, Tamil Nadu, Uttar Pradesh, Telangana and others have collectively diverted over one lakh acres from tobacco farming to more sustainable and profitable crops.

The minister assured that tobacco products will continue to fall under the demerit goods category in the GST framework, attracting the highest slab of 40 percent. Even after the GST compensation cess ceases to exist, the new bill ensures the government retains the authority to impose higher excise duties on products such as cigarettes, cigars, hookah, chewing tobacco, zarda and flavoured variants. Sitharaman reiterated that the move is consistent with India’s commitment to reduce tobacco consumption and address its associated public health burden.

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Under the proposed structure, unmanufactured tobacco will be taxed at a significantly higher excise duty rate of 60–70 percent, signalling a deterrence-focused approach. For cigars and cheroots, the bill recommends a 25 percent excise duty or ₹5,000 per 1,000 sticks—whichever is higher. This steep taxation aims to discourage both production and consumption, while aligning India with global best practices in tobacco taxation.

Cigarettes, which constitute a major share of tobacco consumption, will witness a wide-ranging hike depending on size and filter type. The proposed rates range from ₹2,700 to ₹11,000 per 1,000 sticks, making them substantially costlier post-enactment. Chewing tobacco products, which are widely consumed in several states, will attract an excise levy of ₹100 per kg. Experts believe these measures could lead to a meaningful decline in tobacco use if enforced effectively.

As the bill awaits formal enactment, economic analysts argue that the revised duty structure will not only strengthen public health initiatives but also boost government revenues at a critical fiscal juncture. However, tobacco farmers and small-scale manufacturers may face transitional challenges as higher taxation reshapes the market. With the government pushing crop diversification and stricter regulations, India is set to enter a new phase of tobacco control aimed at reducing addiction, promoting healthier alternatives and enhancing long-term economic stability.

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