From February 1st, smokers in India will likely face higher prices for cigarettes due to a newly imposed excise duty. The Indian government's Ministry of Finance has announced an excise duty ranging from 2,050 to 8,500 rupees per thousand cigarettes, with the specific amount depending on the length of the cigarette.

This new levy is in addition to the existing 40% Goods and Services Tax (GST) already applied to cigarettes. Currently, total taxes account for approximately 53% of the retail price of cigarettes in India. The World Health Organization (WHO) recommends that taxes should make up at least 75% of the retail price to effectively discourage consumption.

The Central Excise (Amendment) Bill 2025, approved in December, replaces a temporary levy on cigarettes and other tobacco products. In addition to the excise duty on tobacco products, the government will also levy a Health and National Security Cess on pan masala, while tobacco and related products will attract additional excise duty. These changes are scheduled to take effect on February 1st, 2026, coinciding with the elimination of the current GST compensation cess.

The increase in excise duty has the potential to affect the sales of major cigarette manufacturers such as ITC and Godfrey Phillips India. Following the announcement, shares of ITC, a leading cigarette maker with brands like Gold Flake and Classic, experienced a 2% drop, while Godfrey Phillips India, the distributor of Marlboro cigarettes in India, saw a 4.1% decrease.

The government estimates that there are around 100 million smokers in India who may be affected by this price increase. The move is part of a broader effort to rationalize the goods and services tax and discourage tobacco consumption in the country. The new tax structure includes a 40% GST on tobacco products, including cigarettes and pan masala, while bidis (rolled tobacco leaves) will be taxed at 18% GST.