Smokers across India will need to dig deeper into their pockets starting next month, as a significant revision in the tax structure is set to make cigarettes noticeably more expensive. The price hike is a direct result of the government's decision to impose an additional excise duty alongside a new, higher Goods and Services Tax (GST) rate on tobacco products.
New Tax Structure: What Changes from February 1?
The Finance Ministry has officially notified amendments to the Central Excise Act, introducing a fresh layer of taxation on cigarettes. This move replaces the existing system of a 28% GST plus a compensation cess. From February 1, 2024, all cigarettes will attract a 40% GST. On top of this, an additional excise duty will be levied, ranging from Rs 2,050 to Rs 8,500 per 1,000 sticks, depending primarily on the length of the cigarette.
This dual increase means the retail price at the counter will see a clear jump. The per-stick impact of the additional excise duty is outlined below, showing that medium and long cigarettes will bear the brunt of the hike.
Revised Excise Duty: Per-Stick Price Impact
Short non-filter cigarettes (up to 65 mm): ~Rs 2.05 per stick.
Short filter cigarettes (up to 65 mm): ~Rs 2.10 per stick.
Medium-length cigarettes (65–70 mm): ~Rs 3.6–4 per stick.
Long / premium cigarettes (70–75 mm): ~Rs 5.4 per stick.
"Other" non-standard designs: Rs 8.5 per stick.
It is important to note that the highest slab for the "other" category applies only to unusual or non-standard cigarette designs, meaning most popular brands will not fall under this top bracket.
Broader Impact on All Tobacco Products
The tax revision is not limited to cigarettes alone. From February 1, a uniform 40% GST will apply to all tobacco products, including cigarettes and pan masala. However, biris will be taxed at a lower rate of 18% GST.
Furthermore, specific excise duties have been set for other smokeless tobacco items. Chewing tobacco and jarda scented tobacco will face an excise duty of 82%, while gutkha will attract a hefty 91% excise duty. The total tax incidence on pan masala, after factoring in GST, will remain unchanged at 88%.
These changes follow a decision by the GST Council in September and were approved by Parliament last month. They come into effect as the compensation cess framework, used to repay states for GST revenue losses during the Covid-19 pandemic, concludes. The associated loan of Rs 2.69 lakh crore is scheduled to be fully repaid by January 31, 2026.
Rationale Behind the Hike and New Compliance Rules
Government sources cited two primary reasons for the significant tax increase on cigarettes. First, it aims to ensure the tax burden is proportionate to the severe public health impact of smoking. Second, it seeks to align India's tax incidence closer to international best practices.
Taxes on cigarettes in India had remained frozen for the past seven years since GST's introduction in July 2017. According to World Bank estimates, India’s total tax incidence on cigarettes is around 53% of the retail price. This is substantially lower than the World Health Organization’s recommended benchmark of 75% or more. For comparison, countries like the United Kingdom and Australia tax cigarettes at over 80–85% of the retail price.
Alongside the tax changes, new manufacturing compliance rules have been introduced. Producers of chewing tobacco, jarda, and gutkha must now install functional CCTV systems covering all packing machines and preserve the footage for at least 24 months. They are also required to disclose machine numbers and capacity to excise authorities. Manufacturers can claim an abatement in excise duty if a machine remains non-functional for a minimum of 15 consecutive days.
The combined effect of the new excise duty and the elevated GST rate marks one of the most substantial shifts in tobacco taxation in recent years, with clear implications for both consumers and the industry.
