Smoking set to get costlier:New excise law to push cigarette prices manifold as duties jump to ₹11,000 per 1,000 sticks

The Indian Parliament has passed the Central Excise (Amendment) Bill, 2025, ushering in a substantial increase in excise duties on tobacco products. The legislation amends the Central Excise Act, 1944, empowering the government to raise taxes on cigarettes, cigars, hookah tobacco, chewing tobacco, and scented tobacco. The move aims to curb tobacco use and address its public health impact. While the government has not specified the impact on retail prices, experts suggest that higher duties will inevitably increase consumer costs, potentially reducing consumption over time.
Surbhi Premi, Founder and Partner, Pratyay Legal, an advisory litigation services company, specialising in GST and indirect taxes, explains: Recent amendment significantly enhances central excise duty on unmanufactured and manufactured tobacco, tobacco products and substitutes. While the headline rate increases appear steep, they are calibrated to neutralise the reduction in tax incidence arising from the impending discontinuation of the GST compensation cess. For instance, excise duty on cigarettes, earlier ranging from ₹200 to ₹735 per 1,000 sticks, has been raised to ₹2,700 to ₹11,000 per 1,000, even as the compensation cess, which stood at 5 to 36% ad valorem plus ₹2,076 to ₹4,170 per 1,000, is phased out. The policy reflects the government’s twin objectives of maintaining overall tax incidence to deter consumption of sin goods, while ensuring continued revenue redistribution to states. Effective date is yet to be notified. Under the new law, excise duties on cigarettes will see dramatic hikes. Duties will rise from ₹200–735 per 1,000 sticks to ₹2,700-11,000 per 1,000, depending on the size and type of cigarette. Filter cigarettes up to 65mm will jump from ₹440 to ₹3,000 per 1,000 units (a 582% increase), while premium 70-75mm variants will surge from ₹545 to ₹7,000 per 1,000—a staggering 1,184% rise. Other tobacco products are also affected. Chewing tobacco will see duties quadruple, from 25% to 100%, while hookah tobacco increases from 25% to 40%. Raw tobacco varieties, including flue-cured Virginia, sun-cured, and burley, will move from 64% to 70% duty rates. Jarda scented tobacco maintains a 100% levy, while cut tobacco shifts from per-kilogram levies to a 10% tax. Government Assurances and Farmer Support Finance Minister Nirmala Sitharaman assured that the revenue generated from higher duties will be shared with states according to Finance Commission recommendations. She emphasized that the legislation will not adversely impact tobacco farmers or beedi workers, highlighting government initiatives for crop diversification to help farmers transition to alternative crops. “The intent is not to make cigarettes affordable but to discourage consumption,” Sitharaman said while seeking parliamentary approval for the measure. Public Health and Fiscal Objectives The government frames the tax hike as both a fiscal and public health measure. Tobacco consumption contributes to nearly 1.35 million deaths annually in India, according to WHO data. According to Reuters, total taxes on cigarettes currently account for roughly 53% of retail prices, below the WHO-recommended 75% benchmark aimed at discouraging consumption. The new excise structure, coupled with a 40% GST, will substantially increase the retail price of tobacco products, aligning India with global best practices for public health. The legislation replaces a temporary levy previously imposed on cigarettes and some luxury items and provides the government fiscal space following the cessation of the earlier cess. Analysts predict the law would prompt manufacturers to raise cigarette prices in line with higher tax obligations. ​