Excise Duty Hike After 7 Years to Push Up Cigarette, Pan Masala Prices From Feb 1

Cigarettes and other tobacco products, including pan masala, are set to become costlier from February 1, 2026.

After the government rolled out a major overhaul of the excise duty framework, citing rising public-health costs and sustained revenue erosion in the sector. In the first significant reset of tobacco taxation since the rollout of GST in 2017, the finance ministry has notified fresh excise duties under the Central Excise Act and the Central Excise (Amendment) Act, 2025. The revised framework restores substantive excise levies on cigarettes, which had remained largely unchanged for nearly seven years.

Higher excise on cigarettes

Under the new regime, cigarettes will attract additional excise duties ranging from ₹2,050 to ₹8,500 per 1,000 sticks, depending on their length and whether they are filtered. These levies will apply over and above GST of up to 40 per cent, significantly increasing the overall tax burden and pushing up retail prices across segments.

Longer and filtered cigarettes are expected to witness the steepest price hikes, as manufacturers are likely to pass on the higher tax incidence to consumers.

Before GST, excise duty formed a core component of cigarette taxation and was revised periodically. That mechanism was effectively paused after 2017, with excise reduced to a nominal level and the GST Compensation Cess bearing much of the tax burden. With the compensation cess now phased out and reduced to zero across all tobacco products, the government has moved to reinstate excise as a specific levy alongside GST, reviving a dual-tax structure previously upheld by the Supreme Court of India.

GST rationalisation, machine-based levy

Alongside excise changes, GST rates on tobacco products have been rationalised. The earlier 28 per cent slab has been removed, with products now taxed either at 18 per cent or at the statutory ceiling of 40 per cent, depending on the category.

Smokeless tobacco products—such as chewing tobacco, jarda scented tobacco and gutkha—will also become more expensive. These will now be taxed under a machine-capacity-based excise system introduced through the new Packing Machines Rules, 2026. The levy will be determined based on factors including the number of machines installed, production speed, output capacity and retail sale price of the pouches.

The government said the machine-based levy aims to curb tax evasion in highly mechanised and cash-driven segments of the tobacco industry, where output has historically been difficult to monitor. Similar capacity-based systems existed in the pre-GST era and are being reintroduced to strengthen compliance.

According to the finance ministry, the revised tax framework aligns India more closely with global public-health recommendations, which call for regular increases in specific excise duties to prevent tobacco products from becoming more affordable as incomes rise. Official estimates suggest tobacco-related illnesses—particularly cancer—are placing a growing strain on the public healthcare system.

All changes will take effect from February 1, 2026, giving manufacturers and distributors time to recalibrate prices, update compliance systems and adjust production plans ahead of the expected price hikes.

Which cigarettes get costlier, and by how much?

According to CNBC-TV18, citing sources, cigarette prices are expected to rise by 20–30 per cent following the duty hike.

Under the revised structure, cigarettes are taxed based on length (in millimetres) and whether they are filtered or non-filtered. In simple terms, longer cigarettes attract higher taxes, which feed directly into retail prices.

• Cigarettes up to 65 mm in length attract the lowest duty, roughly ₹2,700–₹3,000 per 1,000 sticks.
• Cigarettes longer than 65 mm but up to 70 mm fall into a higher tax bracket, with duties rising sharply.
• Cigarettes over 70 mm and up to 75 mm attract duties of around ₹7,000 per 1,000 sticks.
• The highest levy applies to the “other” category, taxed at ₹11,000 per 1,000 sticks, typically covering longer or non-standard designs.