Cigarette Prices Set to Rise by Over 15% as India Raises Tobacco Taxes

According to chartered accountant Deep Koradia, the government will notify the exact rates of the additional excise duty and health cess under the newly introduced Health Security to National Security Cess Bill and changes in excise laws. “A separate cess will be levied based on production capacity, but precise rates are yet to be finalised,” Koradia said.

The tax increase comes on top of the existing Goods and Services Tax (GST) of 40% on cigarettes, while bidis will continue to attract an 18% GST. International brokerage firm Jefferies has estimated that the total tax burden on tobacco products could rise by 20% to 30%, forcing companies to hike cigarette prices by at least 15% to offset the added costs. In some cases, price increases may exceed 15%.

The government has cited multiple reasons for the hike, including rising public health costs, curbing tax evasion in the tobacco sector, plugging long-standing revenue leakages, and aligning India’s tobacco taxation with global public health recommendations. Officials also noted that higher taxes would help offset the effects of rising disposable incomes on tobacco consumption.

Under the new tax structure, GST slabs on tobacco products have been rationalised, with products now falling under either 18% or 40% GST. Chewing tobacco, jarda scented tobacco, and gutkha will now be taxed based on machine output, retail sale price, and other parameters under the newly notified Packing Machines Rules, 2026. An MRP-based valuation system will determine the GST on these products, taking the declared retail price as the base.

Excise duties have also been revised. Gutkha will attract an additional excise duty of 91%, while chewing tobacco and jarda scented tobacco will each face 82%. Cigarettes will be taxed between ₹2,050 and ₹8,500 per 1,000 sticks, depending on their length and filter type.

At the same time, the government has withdrawn the GST Compensation Cess on all tobacco products, effectively reducing the cess to zero. Currently, all tobacco products, including pan masala, cigarettes, hookah, cigars, and scented tobacco, attract 28% GST alongside varying compensation cess rates.

Industry observers warn that the upcoming price revisions could impact demand patterns, especially for lower-cost cigarettes and local tobacco products. Retailers and distributors are awaiting final notifications to set precise MRP adjustments.