On February 1, 2026, India will start imposing higher taxes on pan masala and tobacco products after the Union government officially announced a new excise duty and cess regime to replace the current GST compensation cess. With this action, the tax system for so-called sin products has been completely redesigned. In addition to the relevant Goods and Services Tax rates, the new charges will be applied. Pan masala, cigarettes, tobacco, and related products will be subject to a 40% GST rate starting on February 1, whereas biris would still be subject to an 18% GST rate.
According to the Finance Ministry, pan masala would be subject to a Health and National Security Cess in addition to GST, while tobacco and items related to tobacco will be subject to an additional excise charge. The GST compensating cess, which is presently applied to tobacco and pan masala at different rates, will be replaced by these new fees. The Chewing Tobacco, Jarda Scented Tobacco, and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026 were also announced by the Finance Ministry.
The government has notified new rules tightening regulation of chewing tobacco, scented tobacco and gutkha by setting mechanisms to assess production capacity and collect duty. Following Parliament’s approval of two Bills in December, the Health and National Security Cess on pan masala and an additional excise duty on tobacco will take effect from February 1, 2026. From the same date, the existing GST compensation cess on tobacco and pan masala will be withdrawn. The move restructures the taxation regime while keeping taxes high on products deemed harmful to public health, with expected impacts on manufacturers, prices and consumption patterns.
