India is set to make smoking more expensive as new excise duties on tobacco products come into effect on February 1, 2026. The government's decision, announced on Wednesday, January 1, 2026, involves levying higher taxes on tobacco, cigarettes, and pan masala, a move that has already sent ripples through the stock market, with tobacco stocks experiencing a notable dip.
The new tax regime includes an additional excise duty on tobacco and related products, in addition to the existing 40% Goods and Services Tax (GST). For biris, a type of rolled tobacco, an 18% GST rate will be applicable. Furthermore, a "Health and National Security Cess" will be imposed on pan masala. The specific excise duty on cigarettes will range from ₹2,050 to ₹8,500 per 1,000 sticks, varying based on the length and type of cigarette. This revision follows the parliamentary approval in December of bills enabling the levy of the new health cess and excise duty. The government has formally set February 1, 2026, as the implementation date for these levies, simultaneously discontinuing the existing GST compensation cess on tobacco and pan masala.
The move is projected to increase cigarette prices, potentially pushing the cost of a cigarette priced at ₹18 to around ₹21–₹22. Analysts predict that manufacturers are likely to pass on the increased tax burden to consumers, leading to significant price hikes, especially for longer and filter cigarettes.
Following the announcement, stocks of major cigarette manufacturers in India experienced a downturn. ITC, the maker of popular brands like Gold Flake and Classic, saw its shares drop considerably. Similarly, Godfrey Phillips India, the distributor of Marlboro cigarettes in India, also faced a stock decline.
Experts suggest that these tax increases could impact the tobacco industry in several ways. While historically, cigarette companies have demonstrated the ability to pass on tax hikes to consumers without a substantial decrease in sales volume, sustained increases could drive consumers toward cheaper alternatives, including illicit products. Brokerages like Jefferies and Emkay have warned of potential pressure on sales volumes and an elevated risk from illicit trade due to the fresh tobacco duties.
The government's decision is in line with its public health objectives and fiscal needs. Officials have pointed out the rising healthcare costs associated with tobacco-related illnesses, particularly cancer, as a key justification for raising duties, aiming to align India's tobacco pricing policy with global health recommendations. The World Health Organization (WHO) recommends taxing tobacco at 75% of the retail price; India currently taxes at approximately 53%.
The new tax structure is expected to replace the GST compensation cess and streamline the taxation framework for tobacco and pan masala. While the changes are projected to impact manufacturers, pricing, and consumption patterns, the government aims to reduce tobacco consumption and increase revenue.
