The Lok Sabha, on Wednesday, passed the Central Excise (Amendment) Bill, 2025, by voice vote after Finance Minister Nirmala Sitharaman rejected claims that it introduces a new tax or reduces the share of revenue meant for the states. The bill brings back excise duty on tobacco and related products to keep the overall tax burden unchanged once the GST compensation cess comes to an end.
The bill replaces the cess currently charged on cigarettes, cigars, chewing tobacco, zarda, hookah and other tobacco products. It sets excise duty of 60 to 70 per cent on unmanufactured tobacco, and a 25 per cent duty or ₹5,000 per 1,000 sticks on cigars and cheroots. It also fixes specific rates for cigarettes. Cigarettes without filters up to 65 mm will attract ₹2,700 per 1,000 sticks, rising to₹4,500 for those between 65 mm and 70 mm.
Replying to the debate, Sitharaman said the GST law caps the maximum tax rate at 40 per cent. Without restoring excise duty, she said, the tax on tobacco would fall once the cess ends. “We are making sure cigarettes do not become more affordable,” she told the House.
Several MPs also referred to their own smoking habits and their ill effects. Sitharaman said she hoped the members would follow the advice they had given.
The minister repeated that the bill does not impose any extra levy. “This is not a cess. This is excise duty. It existed before GST. It will form part of the divisible pool, and 41 per cent will be shared with the states,” she said. She added that the share recommended by the Finance Commission remains intact.
Sitharaman dismissed allegations that the Centre had used compensation cess funds to pay its own debts. She said the cess had been approved by the GST Council only to repay loans taken to compensate states for revenue losses during the pandemic.
She said the repayment of these loans would be completed “in a couple of weeks”, after which the compensation cess would end. Restoring excise duty, she said, was the only way to keep the tax incidence on tobacco at the current level.
The minister pointed to other support the Centre had extended to states, including a 50-year interest-free capital loan scheme started after the pandemic, under which Rs 4.24 lakh crore has been provided since 2020.
Sitharaman said no extra duty had been placed on beedi. She listed health, education and housing schemes for beedi workers and noted that other national programmes also support families dependent on the industry.
She said the government had been encouraging farmers to move away from tobacco cultivation. Under the crop diversification programme of the Rashtriya Krishi Vikas Yojana, 10 major tobacco-growing states have been covered. More than 1.12 lakh acres have shifted to other crops between 2018 and 2022.
