Lok Sabha Passes Central Excise Amendment Bill To Levy Duties On Tobacco

The Lok Sabha passed the Central Excise (Amendment) Bill 2025 by a voice vote on Wednesday that will allow the government to levy a higher excise duty on tobacco and related products once the GST compensation cess ends.

The bill, introduced on Monday, amends the Central Excise Act, 1944, to adjust tax rates while discontinuing the compensation cess once its liabilities are settled.

The Central Excise (Amendment) Bill, 2025, will replace the existing GST compensation cess on cigarettes, chewing tobacco, cigars, hookah, zarda and scented tobacco with a revised excise structure.

Finance Minister Nirmala Sitharaman clarified that the bill does not put forth any additional tax on tobacco during a discussion on the bill. She said that the excise duty mop-up from tobacco will be part of divisible pool which will be shared with states.

"This is not a new law, this is not an additional tax or something that the Centre is taking away. Many MPs here observed that this is a Cess. This is not a Cess, this is Excise Duty. Excise duty existed before GST. The amount will be redistributed to the States as per the Finance Commission's recommendations," she told Lok Sabha MPs.

Currently, tobacco products attract 28% GST plus a variable cess. Under the proposed regime, unmanufactured tobacco would face an excise duty of 60-70%, cigars and cheroots would be taxed at 25% or Rs 5,000 per 1,000 sticks, whichever is higher, while cigarettes up to 65 mm without filters would attract Rs 2,700 per 1,000 sticks and Rs 4,500 per 1,000 sticks for lengths up to 70 mm.

The levy of excise on tobacco will ensure that incidence of tax on the demerit good remains same even after the expiry of the GST compensation cess, according to FM Sitharaman.