From 1 February, new taxation and compliance rules for tobacco products and pan masala will come into force, affecting manufacturers across the country.
Under the Health and National Security Cess Act, pan masala units will continue to face a cess on their production capacity, while the total tax burden, including 40% GST, will remain at 88%. Chewing tobacco and jarda-scented tobacco, including gutkha, will attract excise duties of 82% and 91%, respectively.
A key change is the introduction of an MRP-based valuation system for tobacco products such as chewing tobacco, filter khaini, jarda-scented tobacco, and gutkha. Under this system, GST will be calculated based on the retail price printed on the package.
Pan masala manufacturers will also need to register under the Health and National Security Cess law starting 1 February. They must install functional CCTV systems covering all packing machines and retain footage for at least 24 months. Additionally, they will be required to disclose the number and capacity of machines to excise authorities. Abatement of excise duty will be allowed if a machine remains non-functional for at least 15 consecutive days.
Revenue from excise duty on tobacco products will be shared among states following Finance Commission guidelines, with 41% of the Centre’s tax revenue redistributed. Cess proceeds from pan masala production will be allocated to health awareness programs or other health-related schemes in the states.
The GST Council had approved the levy of this cess and excise duty in December 2025. The council, which includes finance ministers from the Centre and states, had decided in September 2025 on the mechanism to impose these levies over and above GST, following the end of the compensation cess period after repayment of the ₹2.69 lakh crore loan taken during the COVID-19 period.
The compensation cess, initially introduced with the rollout of GST in July 2017 to offset revenue losses for states, was extended to 31 March 2026 to repay the COVID-era loan. With repayment completed, the new excise and cess framework will now fully take effect.
