The Indian government today officially notified the Central Excise (Amendment) Act, 2025, cementing a landmark legislative move that effects a substantial increase in excise duties on tobacco products. The move is designed to prevent a sharp fall in tax incidence once the existing GST compensation cess expires, securing a stable revenue stream while advancing public health objectives.
The legislation has completed all parliamentary and official procedures and is now law, granting the government the authority to impose significantly higher duties across nearly all categories of tobacco and its substitutes.
The Effective Date: Expected Before Year-End
While the Act is officially notified today, the new duty structure will only be implemented upon the cessation of the existing Goods and Services Tax (GST) compensation cess, which is currently levied on “sin goods” like tobacco.
Citing the government’s timeline, the new excise duties are expected to commence in the final weeks of December 2025.
Finance Minister Nirmala Sitharaman previously indicated that the cess collection, which is being used to repay the ₹2.69 lakh crore loan taken to compensate states during the COVID-19 period, is likely to cease once the debt is fully discharged—a process expected to conclude in the next couple of weeks or by the end of December.
Dramatic Hike in Duty Rates
The core financial objective of the new law is to substitute the revenue currently collected via the expiring GST cess with a higher Central Excise duty, thereby maintaining the overall tax burden on tobacco at a deterrent level (around 53% of the retail price).
The amendment introduces dramatic increases to the specific and ad valorem duties:
| Product Category | Existing Excise/Duty Rate (Approx.) | New Excise Duty Rate (2025) |
| Cigarettes (per 1,000 sticks) | ₹200 to ₹735 | ₹2,700 to ₹11,000 (depending on length/filter) |
| Chewing Tobacco (Ad Valorem) | 25% | 100% |
| Smoking Mixtures | 60% | 325% |
| Unmanufactured Tobacco | 64% | 70% |
| Hookah/Gudaku Tobacco | 25% | 40% |
Analysts project that this stabilization of the tax burden will secure the government’s annual revenue collection from the sector, estimated at over ₹50,000 crore.
Implications for Industry and Consumers
For tobacco manufacturers, the transition reintroduces complexities associated with the old Central Excise regime and could lead to significant short-term market adjustments:
- Price Shock: The substantial increase in duties on finished goods like cigarettes, chewing tobacco, and smoking mixtures is expected to translate into higher consumer prices. This is consistent with the government’s public health goal of discouraging consumption by reducing affordability.
- Compliance Burden: Industry experts warn of a potential increase in compliance complexity, as the new structure may reopen old classification and valuation disputes, especially concerning various tobacco sub-categories.
- Beedi Exemption: The duty on handmade beedis has largely been kept unchanged at ₹1 per thousand sticks, a measure taken to protect the livelihood of millions of beedi workers.
- Wider Context: The move aligns with the government’s efforts to achieve the World Health Organization’s (WHO) recommended benchmark for tobacco taxation (75% of the retail price), an index where India’s total tax incidence has historically lagged.
In parallel with this excise hike, the government also passed the Health Security se National Security Cess Bill, 2025, which proposes a capacity-based cess on pan masala production, further reinforcing the shift toward a more robust Central tax framework for demerit goods.
