India Raises Excise Duty on Tobacco, Cigarettes From February 1: Prices Set to Increase

The Government of India has announced a fresh excise duty on tobacco products, including cigarettes, effective 1 February 2026, a move expected to make smoking more expensive for nearly 10 crore consumers. The notification has triggered a noticeable impact on the stock market, with major cigarette manufacturers experiencing a decline in share value.

New Excise Duty Structure on Cigarettes and Tobacco

The Finance Ministry has formally introduced Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines Rules, 2026, outlining the new tax framework on tobacco. Under the revised system, an excise duty ranging between ₹2,050 and ₹8,500 per 1,000 cigarette sticks, depending on size, will be applicable from February 1.

This duty comes in addition to the existing GST, further increasing the overall tax burden for manufacturers and consumers. The step is part of the government’s efforts to regulate high tobacco usage and rationalise the taxation structure.

Impact on Stock Market: ITC, Godfrey Phillips Decline

Shortly after the announcement, shares of leading cigarette companies reacted sharply:

• ITC Ltd, maker of Gold Flake and Classic, slipped around 2%
• Godfrey Phillips India, distributor of Marlboro, dropped over 4%
• FMCG index also traded lower, influenced by the tobacco-led sentiment
• The market movement reflects investor concern over reduced profit margins and potential slow-down in sales after the tax hike.

How Will Cigarettes Be Taxed Now?

Revised Tax Structure for Cigarettes and Tobacco Products

With the new policy coming into force from February 2026, tobacco items will follow a revised dual-tax model. GST will continue as before, but an additional excise duty and cess will now be applied depending on the product category. Here’s how taxation will look going forward:

Cigarettes and Pan Masala

Will attract 40% GST, along with an additional excise duty based on size and type.

Bidis

Continued under a lower slab at 18% GST, with other duties applicable as per government rules.

Other Tobacco-Based Products

Such as chewing tobacco, gul, gutkha and related items, to be charged 40% GST, plus Health & National Security Cess and excise duty, replacing the existing compensation cess.

This excise duty will replace the current compensation cess, which will be discontinued from February 2026. The Health & National Security Cess will be specifically applied on pan masala manufacturing, while tobacco products will fall under the dual-tax regime.

Why the Change?

The Parliament had approved two reform bills in December authorising these levies. The new system supports the government’s long-term agenda to:

• Reduce tobacco consumption
• Generate additional revenue
• Simplify GST structure under ongoing tax rationalisation

With prices expected to go up, the industry may witness a shift in consumption patterns. Analysts predict reduced volumes in premium segments, while manufacturers may explore pricing strategies to balance demand. More regulatory updates could follow as India continues to tighten policies around tobacco and public health.

FAQ – Tobacco Excise Duty in India (2026 Update)

1. When will the new cigarette excise duty come into effect?

The revised excise duty will be implemented from 1 February 2026.

2. How much duty will be charged on cigarettes?

Depending on cigarette length, the excise duty will range from ₹2,050 to ₹8,500 per 1,000 sticks.

3. Will GST remain applicable on cigarettes?

Yes. 40% GST continues, and the new excise duty will be charged over and above it.

4. What happens to the compensation cess?

The existing GST compensation cess will be discontinued starting February 2026.

5. How did the stock market react to the announcement?

Shares of ITC fell nearly 2% and Godfrey Phillips dropped over 4%, reflecting investor concerns about the tax impact.