The central government has announced a major tax hike on tobacco products and pan masala. From February 1, cigarettes, pan masala, tobacco, and related products will attract 40% GST, while bidis will be taxed at 18%. Along with GST, the Centre has also imposed additional excise duty on tobacco products and a health and national security cess on pan masala.
The government issued an official notification confirming that these revised tax rates will come into force from February 1.
Parliament Clears New Cess Bills
In December, Parliament passed two key bills related to this decision. These include the Health Security and National Security Cess Bill, 2025, which allows the government to levy a cess on pan masala manufacturing, and another bill enabling excise duty on tobacco products.
While explaining the move, Union Finance Minister Nirmala Sitharaman stated that pan masala already attracts 40% GST. However, the government has now added a cess on top of it. She clarified that the cess amount will depend on the production capacity of manufacturing units, not just sales.
According to the Finance Minister, the revenue collected through this additional tax will strengthen public health systems and national security infrastructure.
Impact on Cigarette Stocks
Meanwhile, the market reacted sharply to the announcement. Shares of major cigarette companies such as ITC and Godfrey Phillips India fell soon after the notification.
Investors expect higher taxes to push up product prices, which could reduce sales volumes. As a result, ITC shares slipped to a 52-week low on the BSE, while Godfrey Phillips stock dropped by nearly 10% in a single session.
Market analysts believe tobacco stocks may remain under pressure in the short term as companies adjust pricing and demand patterns after February 1.
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