The Goods and Services Tax (GST) cess may continue, until January 2026 for tobacco and related products, until outstanding compensation-related loans are cleared, as against the earlier projection of November 2025.
Following GST rate rationalisation under “GST 2.0,” which took effect on September 22, 2025, the GST compensation cess was discontinued for many goods — but not for tobacco and related products (cigarettes, beedi, pan masala, chewing tobacco, etc.).
As the cess is now limited to only tobacco products, the cess collections have plummeted to Rs 7,812 crore in October 2025 from Rs 11,652 crore in September 2025, a decline of 33%.
“Some more time may be needed to meet the loan and interest repayment obligations, but it will be achieved by January 2026,” an official said.
On September 3, the GST Council decided that Pan Masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi will continue at the existing rates of GST and compensation cess where applicable, till loan and interest payment obligations under the compensation cess account are completely discharged. Officials have indicated that these items will attract a special levy post-cessation of cess, to maintain the effective tax incidence on these demerit goods.
The GST Council will make the final decision on the cess, including the exact end date for tobacco products.
With effect from September 22, the cess has been removed for luxury cars, aerated drinks, coal, and many luxury and sin goods. For many items, the cess was merged into a new, consolidated 40% GST rate.
The cess was brought in for five years after GST was rolled out from July 2017 to compensate for potential revenue losses based on a benchmark growth rate. Since July 2022, cess hasn’t accrued to the states, but has been used to repay the back-to-back loans of Rs 2.69 lakh crore taken by the Centre in FY21 and FY22 to compensate states under the guaranteed revenue mechanism.
