New Delhi, Dec 1: The Centre will introduce two new bills in the Lok Sabha on Monday to impose excise duty on tobacco products and a new cess on the manufacturing of pan masala.
The Central Excise Amendment Bill, 2025, aims to replace the existing GST compensation cess currently levied on cigarettes, chewing tobacco, cigars, hookahs, zarda, and scented tobacco. According to the bill, this amendment will allow the government to adjust excise duty rates on tobacco products even after the GST compensation cess ends.
Alongside it, the Health Security se National Security Cess Bill, 2025, proposes a new cess on the production of goods such as pan masala. The government may later notify additional goods on which this cess can be applied.
Currently, tobacco and pan masala fall under the 28 per cent GST slab along with a compensation cess charged at different rates. After the compensation cess ends, tobacco products will draw GST plus excise duty, while pan masala will attract GST plus the new Health Security se National Security Cess. With the removal of the 28 per cent rate, these goods will now fall under the highest GST slab of 40 per cent.
The proposed cess aims to support public health and national security initiatives. It will apply in addition to existing taxes and duties. Manufacturers will also be required to submit self-declarations of all machines or processes used in each factory, with the cess calculated accordingly.
Both bills are scheduled to be introduced by Finance Minister Nirmala Sitharaman on Monday.
When GST was implemented on July 1, 2017, a compensation cess was introduced for five years to offset states’ revenue losses. This was later extended until March 31, 2026, to repay loans taken during the Covid period. Since the loan repayment is expected to finish by December, the compensation cess will automatically come to an end.
On September 3, 2025, the GST Council had agreed to continue the cess on tobacco and pan masala only until the loans were fully repaid. For other luxury items, the compensation cess ended on September 22, after GST rate rationalisation reduced the slabs to 5 and 18 per cent, with a special 40 per cent rate for ultra-luxury and demerit goods.
The two new bills will ensure that the overall tax burden on tobacco and pan masala remains unchanged even after the compensation cess is discontinued.
