New Excise Duty and Health Cess on Tobacco, Pan Masala from Feb 1

Government of India has notified 1 February as the date from which new fiscal levies on tobacco products and pan masala will come into force. The move marks a significant shift in the taxation of so-called sin goods, replacing the earlier compensation cess regime with product-specific levies outside the GST framework.

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New Excise Duty and Health Cess on Tobacco, Pan Masala from Feb 1

Change in Tax Structure from February 1

Under the new notification:

• Additional excise duty will be imposed on tobacco and related products
• A Health and National Security Cess will be levied on pan masala

These levies will be charged over and above the applicable GST rates. With this change, the compensation cess that was earlier used to compensate states for revenue losses after GST implementation will no longer apply to these products.

Revised GST Rates on Tobacco Products

From February 1:

• Pan masala, cigarettes, tobacco and similar products will attract a GST rate of 40%
• Biris will continue to be taxed at a lower GST rate of 18%

The continuation of a lower rate on biris reflects policy intent to account for socio-economic factors, as biris are widely consumed by lower-income groups.

Health and National Security Cess Explained

The Health and National Security Cess is a newly introduced levy that applies specifically to pan masala manufacturing. Tobacco and its derivatives will instead face additional excise duty.

Key features:

• Levies are outside the GST framework
• Aimed at discouraging harmful consumption
• Designed to generate dedicated revenue for public health and national security priorities

Legislative Approval and Policy Rationale

The legal backing for the new tax structure was approved by the Parliament of India in December, through the passage of two Bills. These Bills authorised:

• Health and National Security Cess on pan masala
• Additional excise duty on tobacco products

The measures align with the government’s broader objective of reducing harmful consumption while ensuring stable revenue flows beyond the GST compensation mechanism.

Exam-Oriented Key Facts

• New levies on tobacco and pan masala come into effect from 1 February
• Compensation cess is being replaced by new excise duty and cess
• GST rate on cigarettes and pan masala: 40%
• GST rate on biris: 18%
• Health and National Security Cess operates outside GST
• Legal approval granted by Parliament of India

Question & Answer

Q1. From which date will the new fiscal levies on tobacco and pan masala come into force?
(a) January 1
(b) February 1
(c) April 1
(d) March 31
Answer: February 1

Q2. Which levy has been replaced by the new tax structure on tobacco and pan masala?
(a) Customs duty
(b) Service tax
(c) Compensation cess
(d) Swachh Bharat cess
Answer: Compensation cess

Q3. What is the GST rate applicable on cigarettes and pan masala from February 1?
(a) 18%
(b) 28%
(c) 35%
(d) 40%
Answer: 40%

Q4. Which product continues to attract a lower GST rate of 18%?
(a) Cigarettes
(b) Pan masala
(c) Tobacco extracts
(d) Biris
Answer: Biris

Q5. Health and National Security Cess is levied outside which tax framework?
(a) Income Tax
(b) Customs Duty
(c) GST
(d) Corporate Tax
Answer: GST

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