Why in the news?

The Centre has notified the Central Excise Amendment Act 2025 along with related tax changes on tobacco products. The changes will come into force from February 1, 2026. The move ends the GST compensation cess on tobacco and revises excise duties to meet fiscal and public health goals.

Central Excise Amendment Act 2025

The Act amends the Central Excise Act 1944 to revise excise duties on tobacco and tobacco related products, which continue to remain outside the complete GST framework.

Key features

Revision of excise duties

The Act revises central excise rates to maintain and increase the overall tax burden after the withdrawal of GST compensation cess.

Revised excise duty rates

Unmanufactured tobacco increased from 64 percent to 70 percent
Chewing tobacco increased from 25 percent to 100 percent
Hookah and gudaku tobacco increased from 25 percent to 40 percent
Smoking mixtures for pipes and cigarettes increased from 60 percent to 325 percent
Cigarettes increased from ₹200 to ₹735 per thousand sticks to ₹2,700 to ₹11,000 per thousand sticks

Public health objective

The higher duties aim to raise real tobacco prices faster than income growth, in line with global public health recommendations to discourage consumption.

GST restructuring on tobacco

Beedis placed under 18 percent GST
All other tobacco products placed under 40 percent GST
New valuation mechanism introduced
GST value to be calculated on the retail sale price declared on the package for products such as chewing tobacco, gutkha, khaini and jarda

GST compensation cess

What it is

An additional levy imposed on select goods to compensate States for revenue losses due to GST implementation.

Key points

Introduced in July 2017 along with GST
Initially meant for five years till June 2022
Extended till March 31, 2026 due to pandemic related revenue shortfall
Used mainly to repay about ₹2.7 lakh crore borrowed to compensate States
Levied over and above GST and central excise on tobacco
Being completely phased out from February 1, 2026

Items covered under the cess

Tobacco and tobacco products
Pan masala
Aerated and caffeinated drinks
Luxury cars
Motorcycles above 350 cc
Specified firearms

Prelims pointers

Tobacco products remain partly outside the GST framework
Central excise continues on tobacco even after GST
GST compensation cess ends from February 1, 2026
Higher tobacco taxation serves both revenue and public health objectives

[2017] What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’?

1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.

2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.

3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.

Select the correct answer using the code given below:

(a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3

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