Understanding GST Rates and Additional Levies on Tobacco Products in India

The tobacco industry in India is one of the largest globally, despite significant health risks, with over 275 million users. To discourage consumption, the government imposes substantial taxes on these products. The 56th GST Council meeting, held on September 3rd, 2025, in New Delhi, reiterated this policy. This article clarifies the Goods and Services Tax (GST) applicable to cigarettes, the rates on various tobacco items, and other imposed duties and cesses.

Key Takeaways

• Tobacco products, including pan masala, gutkha, chewing tobacco, and cigarettes, are subject to a 28% GST rate, in addition to excise duty, National Calamity Contingent Duty (NCCD), and Compensation Cess, as confirmed during the 56th GST Council meeting.
• The meeting also discussed implementing a 40% 'sin tax' on tobacco products like cigarettes and pan masala to further deter consumption, though its implementation date remains unspecified.

Impact of GST on the Tobacco Industry

The tobacco sector is categorized as a sin good, incurring Central Excise duty, NCCD, GST, and a compensation cess. This industry significantly contributes to the Indian government's revenue. However, according to World Health Organization (WHO) recommendations, the current tax burden on Indian tobacco products does not meet the suggested minimum of 75%.

Consequently, there is an ongoing call for increased taxation on tobacco manufacturers. The Indian government has consistently raised tax rates on cigarettes and other tobacco items. For instance, Budget 2023 proposed an upward revision of the NCCD rate by 16%.

Let's examine the duties and taxes applied to cigarettes and other tobacco products. Please note that this list of products is not exhaustive.

GST Rate on Cigarettes and Tobacco Products

The Indian government has imposed the highest GST rate of 28% on cigarettes and other tobacco products. This includes items such as pan masala, cigars, cigarillos, hookah, and similar products. Additionally, a compensation cess is levied under GST law, along with duties under Central Excise law.

Duties and Cesses on Cigarettes and Tobacco Products

A compensation cess is applied to cigarettes and tobacco products under GST law, falling under the 'sin goods' category. Similarly, Central Excise laws impose excise duty and NCCD.

The following table outlines the most current rates for excise duty, NCCD, and compensation cess on the manufacturing of various cigarettes and tobacco products.

(In rupees per one thousand sticks)|Particulars|Cigarettes up to 65mm in length|Cigarettes between 65mm and 70mm|Filter cigarettes up to 65mm in length|Filter cigarettes between 65mm and 70mm|Filter cigarettes between 70mm and 75mm|Other cigarettes containing tobacco|Cigarettes of tobacco substitutes|---|---|---|---|---|---|---|---|>Excise duty|5|5|5|5|5|10|5|>NCCD #|230|290|510|510|630|850|690|>Compensation cess|5% + Rs.2076|5% + Rs.3668*|5% + Rs.2076|5% + Rs.2747|5% + Rs.3668|36% + Rs.4170|Rs.4006

*This rate applies to cigarettes exceeding 65 millimeters but not more than 75 millimeters in length.

**The filter's length is included in the cigarette's total length, being either 11mm or the actual filter length, whichever is greater.

#NCCD rates became effective from February 2nd, 2023, as announced in Budget 2023.

Excise duty on chewing tobacco, preparations containing chewing tobacco, snuff, hookah or gudaku tobacco, tobacco extracts and essence, and jarda-scented tobacco is 0.5%. For cigarillos made from tobacco substitutes, the excise duty is 1%.

It is crucial to understand that Central Excise and NCCD are calculated on the abated value (with abatements provided under the Central Excise Act). In contrast, GST and compensation cess are computed on the transaction value, which includes excise duty and NCCD. No abatement is granted for tobacco products under GST law.

How to Calculate GST on Cigarettes?

Let's illustrate the GST calculation for cigarettes with an example:

|Particulars|Amount (in Rupees)|---|---|Cost of manufacturing a pack of 10 cigarettes (non-filter, up to 65mm in length)|100|Excise duty @0.5% on abated value (100 x 45%) x 0.5%|0.23|NCCD @230 per thousand cigarettes, i.e. 2.3% on abated value (100 x 45%) x 2.3%|1.04|Total price for GST calculation|101.27|GST @ 28%|28.35|Compensation cess @5% + 2076 per thousand cigarettes (102.53 x 5%) + 20.76|25.82|Total sale price|155.44

It is important to note that tax and duty rates, as well as abatements provided to tobacco product manufacturers, are subject to change based on government policies.

Conclusion

While the prices of cigarettes and tobacco products have seen only a minor increase since the pre-GST era, remaining largely affordable, attention is now focused on the outcomes of the 56th GST Council meeting. There is an expectation that the council might introduce a special 40% sin tax on these items. This measure aims to reduce consumption and generate additional revenue for public health initiatives. Although such a potential tax hike could impact pricing, its overall effect on affordability and consumer habits remains to be seen.