Govt hikes tax on tobacco, pan masala from Feb 1; New health and security cess introduced

Centre notifies higher excise duty and a fresh cess on pan masala, while ending GST compensation cess on tobacco-related products from February 1.

The Union government has announced higher taxes on tobacco products and pan masala, with the new rates set to take effect from February 1. A notification issued on Wednesday confirms the introduction of additional excise duty on tobacco products and a new Health and National Security Cess on pan masala.

As per the notification, the new levies will replace the existing GST compensation cess currently imposed on these so-called “sin goods.” From February 1 onwards, the GST compensation cess, which is presently charged at varying rates, will cease to exist.

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Under the revised tax structure, pan masala, cigarettes, tobacco and similar products will attract a 40 per cent Goods and Services Tax (GST). Beedis, however, will continue to be taxed at a lower GST rate of 18 per cent, the government clarified.

In addition to GST, pan masala will now be subject to a separate Health and National Security Cess. Tobacco and allied products, on the other hand, will face an increased excise duty instead of the compensation cess.

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The Finance Ministry also issued a separate notification on Wednesday announcing the “Chewing Tobacco, Zarda, Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026.” These rules aim to strengthen monitoring and duty collection in the tobacco manufacturing sector.

Notably, Parliament had cleared two Bills in December that allowed the government to impose a new health and national security cess on pan masala and levy higher excise duty on tobacco products. The Centre has now officially notified February 1 as the implementation date for these changes.