Finance minister Nirmala Sitharaman on Monday introduced two key taxation bills in the Lok Sabha to overhaul the tax framework for tobacco, pan masala and other specified goods as the GST compensation cess on these items nears its sunset.
The Central Excise (Amendment) Bill, 2025 proposes a fresh excise duty regime on tobacco and allied products, replacing the compensation cess currently levied. In tandem, the proposed Health Security and National Security Cess Bill, 2025 seeks to impose a dedicated cess on pan masala and other specified goods that the government may notify in future. The new cess will be earmarked for public health interventions and national security funding.
TMC MP Saugata Ray opposed their introduction, arguing that though tobacco is injurious to health, the excise amendment bill lacks such a declaration. He further objected to the cess proposal, stating that cess proceeds are not shared with states, thereby undermining fiscal federalism.
Under the central excise amendment, the government has proposed a duty of ₹2,700–₹11,000 per 1,000 sticks on cigars, cheroots and cigarettes, depending on their length. The bill also envisages a 60–70 per cent levy on unmanufactured tobacco and 100 per cent duty on nicotine and inhalation products, over and above the existing 40 per cent GST rate applicable to sin goods.
While excise revenues on tobacco will flow into the divisible tax pool, collections from the health-cum-security cess will be retained by the centre.
“Compensation cess levied on tobacco and tobacco products, wherever applicable, will be discontinued once interest payment obligations and loan liabilities under the compensation cess account are completely discharged. In order to give the government the fiscal space to increase the rate of central excise duty on tobacco and tobacco products so as to protect tax incidence, it is imperative to amend the table in section IV of the fourth schedule to the said Act,” the statement and objectives of the bill said.
Additional spending
The government on Monday sought Parliament’s nod for net additional spending of ₹41,455 crore in the current fiscal, of which over ₹27,000 crore expenditure is towards fertiliser and petroleum subsidies.
Sitharaman tabled the first batch of Supplementary Demands for Grants for 2025-26 in the Lok Sabha, which seeks approval for a gross additional expenditure of ₹1.32 lakh crore.
This includes a net cash outgo of ₹41,455.39 crore.