With the ongoing political logjam in the Lok Sabha showing signs of easing, the Centre is likely to push forward with the Central Excise (Amendment) Bill, 2025. The Bill, which aims to revise the excise duty structure on tobacco and related products, was introduced in the Lok Sabha on December 1, 2025, by Finance Minister Nirmala Sitharaman.
The logjam in Parliament arose from the opposition's demand for a discussion on the Special Intensive Revision (SIR) of electoral rolls. However, after multiple meetings and negotiations, an all-party agreement was reached to hold discussions on both the 150th anniversary of Vande Mataram and electoral reforms. This breakthrough has paved the way for the smooth functioning of the Lok Sabha and the potential movement of key legislative business, including the Central Excise (Amendment) Bill.
The Central Excise (Amendment) Bill, 2025, seeks to amend the Central Excise Act, 1944, one of India's oldest tax laws. The primary objective of the bill is to replace the existing Goods and Services Tax (GST) compensation cess levied on tobacco products with revised excise duties. This move is intended to safeguard tax revenues and maintain the historically high tax burden on tobacco products once the Compensation Cess is phased out. According to the Statement of Objects and Reasons, the Compensation Cess on tobacco and related products will be discontinued after all interest payments and loan liabilities under the cess account are fully settled.
The bill proposes significant hikes in excise duties on various tobacco and nicotine products. For instance, the duty on unmanufactured tobacco is set to increase from around 64% to 70%, while tobacco waste will see a rise from 50% to 60%. Cigars and cigarillos will face a higher duty of 25% or Rs. 5000 per thousand units, whichever is higher, compared to the previous duty of 12.5% or Rs. 4006 per thousand units. Cigarettes are expected to experience the most substantial increases, with excise duties potentially ranging from Rs 2,700 to Rs 11,000 per thousand sticks, depending on their length. Chewing tobacco, jarda, snuff, and similar products may attract excise duties ranging from 70% to 125%.
The government aims to utilize the increased revenue from these duties to fund national security and public health initiatives. Furthermore, the proposed changes align with the government's objective to maintain a high tax incidence on tobacco products, considering that they were previously taxed at 28% GST, along with a compensation cess of 5–290%.
The passage of the Central Excise (Amendment) Bill, 2025, is expected to have a wide-ranging impact on the tobacco industry and consumers. The increased excise duties could lead to higher prices for tobacco products, potentially impacting consumption patterns and revenue generation. The bill also reflects the government's commitment to public health by discouraging tobacco consumption through increased taxation.
