Govt imposes new excise duty on cigarettes from Feb 1; tobacco co shares fall

The government has imposed an excise duty on cigarettes ranging from Rs 2,050 to Rs 8,500 per 1,000 sticks, depending on product length, with effect from February 1, the finance ministry said in a notification issued late on Wednesday (December 31).

The move is expected to push up cigarette prices for an estimated 100 million smokers in the country.

Excise duty on cigarettes

In December, the government approved the Central Excise (Amendment) Bill, 2025, replacing a temporary levy on cigarettes and tobacco products.

The excise duty will be levied in addition to the existing 40 per cent Goods and Services Tax (GST), according to the order.

Total taxes on cigarettes in India currently account for around 53 per cent of retail prices, well below the World Health Organization’s recommended benchmark of 75 per cent aimed at discouraging consumption.

Also Read: GST on cigarettes, tobacco, fizzy drinks may go up to 35%

This includes a 28 per cent GST and an additional value-based levy linked to cigarette size.

The higher levies could impact cigarette manufacturers such as ITC and Godfrey Phillips.

Tobacco stocks slide

Shares of tobacco companies fell on Thursday (January 1) following the government’s decision, as the new tax is expected to make cigarettes costlier for consumers.

Market leader ITC slid 4.4 per cent, while Godfrey Phillips India declined 7.7 per cent. ITC shares were trading at Rs 385.25, their lowest level since June 2024, and were on track for their worst single-day fall since February 2022.

Also Read: Not a smoker? Air pollution is as lethal as a cigarette, say doctors

ITC was the biggest drag on the Nifty 50 index and also led losses on the FMCG index, which was down 1.6 per cent.

Higher tax raises costs

The finance ministry announcement follows the government’s approval of the Central Excise (Amendment) Bill in December.

According to analysts at ICICI Securities, cited in a Reuters report, the duty translates into a 22–28 per cent increase in overall costs for cigarettes measuring 75-85 mm.

“Cigarettes longer than 75 mm account for roughly 16 per cent of ITC’s volumes and are likely to see price increases of Rs 2–Rs 3 per stick as a result of the levy,” the analysts said.

The new tax will apply alongside the existing GST regime. While the government has not specified the impact on retail prices, analysts expect companies to pass on the higher tax burden to consumers.

Also Read: Explained: What Central Excise (Amendment) Bill means for tobacco taxation in India

Smoking-related health issues are widely seen as a major drain on the country’s resources, prompting the government to introduce measures such as larger warning labels and periodic tax increases to curb consumption.

(With agency inputs)