Finance minister Nirmala Sitharaman today introduced The Central Excise (Amendment) Bill, 2025 and The Health Security Se National Security Cess Bill, 2025 in the Lok Sabha today to levy excise duty on tobacco and health cum national security cess on pan masala.

It may be noted that the finance ministry had kept cigarette, pan masala outside the purview of the GST 2.0 tax reset, which was applicable on all items with effect from September 22 this year. The new rates on cigarette pan masala will kick in post the payback of the debt taken during the Covid-19 pandemic in FY21 and FY22 to compensate the states. To enable the same, the bills have been table in the Lok Sabha today.

Additional levies on tobacco, pan masala and cigarettes will ensure that the total incidence of tax on these items remains the same once the GST rate of 40% on sin goods, as per the new rates announced in GST 2.0 are implemented after the loans are discharge.

"On tabacco, the bill introduces excise duty in place of compensation cess and on Paan masala, provision has been made to remove GST compensation cess and introduce health and national security cess. the overall pricing for teh consumer does not change materially," said Hardik Gandhi, partner, Deloitte India.

“With the introduction of the Goods and Services Tax (GST) on 1st July, 2017, the Central Excise Act, 1944 was repealed by section 174 of the Central Goods and Services Tax Act, 2017, except in respect of goods listed under Entry 84 of List I of the Seventh Schedule to the Constitution. This includes tobacco and tobacco products. With the levy of GST and compensation cess on tobacco and tobacco products, the rates of Central Excise duties were reduced significantly to allow for the levy of compensation cess without large impact on their tax incidence,” said a note on the The Central Excise (Amendment) Bill, 2025.

“Compensation cess levied on tobacco and tobacco products, wherever applicable, will be discontinued once interest payment obligations and loan liabilities under the compensation cess account are completely discharged,” it said.

“In order to give the government, the fiscal space to increase the rate of central excise duty on tobacco and tobacco products so as to protect tax incidence, it is imperative to amend the table in Section IV of the Fourth Schedule to the said Act. 3. Accordingly, it is proposed to introduce the Central Excise (Amendment) Bill, 2025 in Parliament to substitute the table containing the tariff rates of tobacco and tobacco products in Section IV of the Fourth Schedule to the Central Excise Act, 1944,” it added.