New Delhi, 1 Jan

India will impose an additional excise duty on tobacco products, including cigarettes and pan masala, from February 1, 2026, a move that is expected to make cigarettes significantly costlier for consumers.

The finance ministry late on Wednesday notified the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026, introducing an excise duty ranging from ₹2,050 to ₹8,500 per 1,000 cigarette sticks, depending on their length.

Brokerage Jefferies said cigarette makers may need to raise prices by “at least 15%” to pass on the impact of the higher tax burden. ITC, which derives over 40% of its revenue from cigarettes, could be among the most affected. Its shares fell as much as 9.8% on Wednesday, the steepest drop since 2020. Godfrey Phillips India Ltd. slid 17.6% on the BSE.

ITC sells cigarette brands such as Classic and Gold Flake, while Godfrey Phillips markets Marlboro and Four Square in India.

The new excise duty will be levied over and above the goods and services tax (GST). From February 1, tobacco products including cigarettes and pan masala will attract 40% GST, while bidis will be taxed at 18%. In addition, a Health and National Security Cess will be imposed on pan masala, alongside the fresh excise duty on tobacco and related products.

The move replaces the existing GST compensation cess, which will be withdrawn as part of a broader effort to rationalise the indirect tax regime in the world’s fourth-largest economy.

Parliament had approved two bills in December enabling the levy of the Health and National Security Cess and the new excise duty. The government has now notified February 1, 2026, as the implementation date for the changes