The latest Central Excise (Amendment) Bill, 2025, introduced in the Lok Sabha on Monday, marks a significant restructuring of how India taxes tobacco products. The bill, tabled by Finance Minister Nirmala Sitharaman, proposes substantial increases in excise duties across nearly all tobacco categories, from raw tobacco to cigarettes and chewing tobacco.
Many experts see it as a dual strategy to boost government revenues while discouraging consumption. Sweeping hikes in tobacco product duties are expected to translate to the customer, making smoking an expensive affair.
Industry giant ITC was already having a bad day at the stock market, opening much lower on Monday morning versus last week's close. Despite gaining some ground during the day to move slightly into green territory, the news of the bill pushed its shares back into red at closing bell. Another major player, Godfrey Phillips India, also lost its daily gains, settling 1.2 per cent lower at close.
Major tobacco duty changes
The most dramatic increases appear in unmanufactured tobacco. Raw tobacco varieties—including flue-cured virginia, sun-cured, and burley tobacco—will see duty rates jump from 64 per cent to 70 per cent, according to the bill's tariff amendments.
Chewing tobacco faces an even steeper increase, from 25 per cent to 100 per cent, a fourfold rise that industry analysts describe as transformative. Jarda scented tobacco will keep its existing 100 per cent duty, while cut tobacco moves from specific per-kilogramme levies to 10 per cent.
For manufactured cigarettes, the changes are a bit varied depending on their length.
Filter cigarettes up to 65mm length increase from Rs 440 to Rs 3,000 per thousand units (up 582 per cent), while premium longer variants (70-75mm) jump from Rs 545 to Rs 7,000 per thousand—a 1184 per cent duty jump!
Compensation cess led to tobacco duty
The government's rationale for the latest amendment proposal centres on compensation cess discontinuation. According to the bill's Statement of Objects and Reasons, "Compensation cess levied on tobacco and tobacco products, wherever applicable, will be discontinued once interest payment obligations and loan liabilities under the compensation cess account are completely discharged."
The amendments are needed to provide "fiscal space to increase the rate of central excise duty on tobacco and tobacco products so as to protect tax incidence."
This restructuring represents one of India's most aggressive tobacco tax moves since GST implementation in 2017, when the Central Excise Act was significantly curtailed.
The bill applies across all tobacco categories covered under the Central Excise Act's Fourth Schedule, affecting everything from bidi leaves to premium cigars.
With Finance Minister Nirmala Sitharaman introducing the bill (Bill No. 143 of 2025), it now enters parliamentary committee review before a final vote. No implementation date has been announced, though the bill states it "shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint." However, it does note, "The Bill, if enacted, will not involve any expenditure, either recurring or non-recurring in nature, from the Consolidated Fund of India."
