Tobacco GST Rate 2025: How the Latest Updates Affect Tobacco Prices
- Rashmita Choudhary
- 5 days ago
- 6 min read
Introduction
The tobacco industry in India is still one of the largest in the world, boasting over 275 million users, even with the serious health risks involved. To help reduce consumption, the government has slapped hefty taxes on tobacco products. The recent 56th GST Council meeting held in New Delhi on September 3, 2025, reinforced this policy. In this article, we’ll dive into the GST on cigarettes, the tax rates for tobacco products, and the additional duties and cess that come into play.
Table of Contents
Cigarettes and Tobacco Products GST Rate 2025
The Indian government has set the highest GST rate for cigarettes and tobacco products at 28%. It includes a range of items such as pan masala, cigars, cigarillos, and hookah, among others. On top of that, there's a compensation cess applied under the GST law, along with duties from the Central Excise law.
Cigarettes and Tobacco Products Duties and Cess
As sin goods, cigarettes and tobacco products are subject to a compensation cess under the GST statute. Likewise, Central Excise laws impose excise duties along with National Calamity Contingent Duty (NCCD). The table below shows the latest rates for excise duty, NCCD, and compensation cess applied to the production of cigarettes and tobacco products.
(In rupees for a thousand sticks)
Particulars
| Cigarettes (up to 65mm)
| Cigarettes (65mm -70mm)
| Filter cigarettes (up to 65mm**)
| Filter cigarettes (65mm -70mm **)
| Filter cigarettes (70mm -75mm**)
| Other cigarettes with 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 |
*Cigarettes longer than 65 millimeters but no more than 75 millimeters are eligible for this pricing.
**The cigarette's length is 11 mm, or the filter's actual length, whichever is greater.
#As mentioned in Budget 2023, the NCCD rates will come into effect on February 2, 2023.
The excise duty on chewing tobacco, as well as products that include it like snuff, hukkah or gudaku tobacco, tobacco extracts and essence, and jarda-scented tobacco, is set at 0.5%. For cigarillos made from tobacco substitutes, the excise duty is 1%. Understanding that Central Excise and NCCD depend on the abated value—applicable when abatements become available under the Central Excise Act—is key. In contrast, the transaction value is what we rely on to calculate GST and compensation cess, once we factor in excise duty and NCCD. It's worth noting that the GST law does not allow for any abatements on tobacco products.
Impact of GST on the Tobacco Industry in India
The tobacco industry is subject to various taxes, including Central Excise duty, National Calamity Contingent Duty (NCCD), GST, and a compensation cess, all because it's considered a sin good. It indicates that the Indian government receives a sizable income stream from tobacco sales. However, many believe that the tax burden on the Indian tobacco industry falls short of what it should be, especially since the WHO recommends a minimum tax rate of 75% on all tobacco products. Lately, there's been a noticeable push for higher taxes on tobacco manufacturers. The Indian government has been consistently hiking the tax rates on cigarettes and tobacco items. As part of this effort, the Budget 2023 suggested a 16% increase in the NCCD rate.
GST and Input Tax Credit (ITC) on Tobacco
Businesses involved in the manufacturing or trading of tobacco products can benefit from the Input Tax Credit (ITC) on various items such as raw materials, packaging materials, flavouring agents, and processing equipment. Just make sure these inputs are used directly for resale or in the production of taxable tobacco products. However, free tobacco samples or promotional gifts are not eligible for ITC. For filing GST returns and claiming ITC, it's vital to have precise documentation, especially when complying with HSN codes.
Calculation of GST on Cigarettes
Let's use an example to demonstrate how to compute the GST on cigarettes:
Particulars
| Amount (in Rupees)
|
Cost of manufacturing a pack of non-filter 10 cigarettes, 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 |
Keep in mind that the government's policies could influence tax rates and tariffs, as well as the benefits provided to tobacco product producers.
Latest Update on GST on Tobacco
The GST Council declared at its 56th meeting that the revised rates on goods and services will take effect on September 22, 2025. However, for certain items such as cigarettes, chewing tobacco, zarda, unmanufactured tobacco, and beedis, the current GST rates and compensation cess will still apply for now. After the government has cleared all its loans designed to compensate states for their revenue shortfalls, the new pricing for these products will take effect. Following that, these items will get taxed at a straightforward 40% GST rate, without any extra cess. During the pandemic years, the Central government borrowed a whopping Rs 1.1 lakh crore in 2020-21 and another Rs 1.59 lakh crore to make up for shortfalls in cess collections. Looking ahead to the 2025-26 Union Budget, the government aims to collect Rs 1.67 lakh crore in compensation cess this year, with Rs 67,500 crore earmarked for repaying these loans. Additionally, they’ve already made repayments of Rs 78,104 crore in 2023-24 and plan to pay back Rs 1.24 lakh crore in 2024-25.
Conclusion
Cigarettes and tobacco products are still pretty affordable, with only a small price bump since the pre-GST days. Now, all eyes are on the upcoming 56th GST Council meeting. The council may decide to impose a 40% sin tax on these goods to deter their usage and raise more money for public health initiatives. While this potential tax increase could change prices, we’ll have to wait and see how it really affects affordability and consumption.
Frequently Asked Questions
What is the GST rate on tobacco products in India?
Depending on the goods, it is 28% GST plus a different compensatory cess.
What is the GST on cigarettes specifically?
28% GST in addition to a length/type-based compensating cess (between Rs. 1.05 and Rs. 4.17 per stick or ad valorem rates).
What is the chewing tobacco GST rate?
142% compensation cess plus 28% GST.
How is the GST calculated on cigarettes?
The transaction value comprises the manufacturing cost, excise duty, and NCCD, and is used to compute the GST on cigarettes. The final selling price gets calculated by adding the compensatory cess and the appropriate GST rate of 28%.
What are the HSN codes used for tobacco products under GST?
The HSN Code's Chapter 24 covers tobacco and tobacco-related products. The article provides the precise HSN codes for several tobacco products, including chewing tobacco, cigarettes, unmanufactured tobacco, and tobacco replacements.
Why does the government impose such high taxes on tobacco products?
The main goals of India's high tobacco product taxes are to deter consumption and increase public coffers. Since tobacco is a "sin good," the government's goal is to discourage its usage while collecting tax revenue.
What is the key purpose of Compensation Cess on tobacco?
The cess serves as a sin tax to deter tobacco use and reimburses governments for lost revenue following the implementation of the GST.
Can businesses claim Input Tax Credit (ITC) for goods used in manufacturing tobacco products?
Businesses that employ raw materials, packaging materials, flavouring agents, and processing equipment directly in the production or sale of taxable tobacco products are eligible to claim the Input Tax Credit (ITC). However, free tobacco samples or promotional gifts are not eligible for ITC.
What are the compliance considerations for businesses dealing in tobacco products under GST?
Businesses that sell tobacco products need to pay close attention to getting their HSN classification right, applying the appropriate GST rates and compensation cess, and filing their GST and compensation cess returns on time. It will help you avoid any unwanted penalties or interest.
