INDIA on Monday introduced two new tax bills in parliament to revise levies on tobacco, pan masala and other “sin goods” before the Goods and Services Tax (GST) compensation cess is phased out next year.
India's finance minister Nirmala Sitharaman said the move creates a new central excise duty structure to keep taxes on these products high and avoid revenue losses once the cess expires.
She introduced the Central Excise (Amendment) Bill, 2025, which proposes excise duties ranging from 60 per cent to 70 per cent. Specific duties on cigarettes will vary by length and whether they use filters, she said.
The GST compensation cess is an additional levy on ‘sin’ and luxury goods used to compensate states for revenue lost after the GST rollout in 2017.
Sitharaman said: “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.”
She also introduced a separate bill for a new cess on pan masala and any other goods the government may notify. The Health Security and National Security Cess Bill, 2025, outlines a levy meant to fund health programmes and national security requirements while maintaining the cost of high-risk goods after withdrawal of the GST compensation cess.
The cess will be based on the declared production capacity of machines or processes, not actual output. The government expects this to improve compliance and reduce under-reporting. Both large and small manufacturers, including those producing handmade items, will be required to register and pay a fixed monthly cess.
The two bills, part of the broader tax realignment before GST compensation provisions end, will now be reviewed by parliamentary panels. A vote is expected next year, where approval is likely.
(With inputs from agencies)
