New Delhi, Dec 05 : The Central Excise (Amendment) Bill, 2025 received Parliament’s approval on Thursday after passing the Rajya Sabha, a day after the Lok Sabha cleared it. The legislation replaces the GST compensation cess on tobacco products with significantly higher central excise duties as part of an overhaul of India’s indirect tax regime.
Introduced on December 1, the bill amends the Central Excise Act, 1944 to restructure taxation on tobacco. Once all GST compensation liabilities are settled, the compensation cess will be discontinued, enabling the Centre to increase excise duties without reducing the overall “sin tax” burden on tobacco.
Government says tax burden remains stable
Finance Minister Nirmala Sitharaman said the change ensures continuity in tax incidence after the cess phaseout and aligns with the government’s stance on maintaining a high tax on tobacco to discourage consumption. She also emphasised that the hike will not harm tobacco farmers.
Sitharaman highlighted that the government is already supporting farmers to shift to alternative crops through the Crop Diversification Programme (CDP) under the Rashtriya Krishi Vikas Yojana (RKVY). The programme, operational since 2015-16, covers 10 tobacco-growing states and promotes transitions to pulses, oilseeds and horticultural produce.
Sharp duty hikes across tobacco categories
Under the new law, the central excise duty has been increased substantially:
Unmanufactured Tobacco: From 64% to 70%
Cigarettes: From ₹200–₹735 per 1,000 sticks to ₹2,700–₹11,000
Chewing Tobacco: Duty raised to 100% (4× increase)
Hookah/Gudaku Tobacco: Increased to 40%
Smoking Mixtures: Increased to 325%
Move aimed at curbing consumption, strengthening revenue
The reform is expected to discourage tobacco use, safeguard state revenues after the GST cess ends, and streamline India’s indirect tax system. Policymakers view the hike as a critical step toward reducing tobacco consumption while enabling long-term fiscal stability.