Finance Minister Nirmala Sitharaman on Monday introduced two new bills in the Lok Sabha which would ensure that high taxes on ‘sin goods’ such as tobacco, pan masala and related products continue seamlessly after the scheduled phase-out of Goods and Services Tax (GST) compensation cess, levied on them. The bills were introduced in the lower house amid opposition parties’ protest demanding discussion on the Special Intensive Revision (SIR) of electoral rolls.
While the Central Excise (Amendment) Bill, 2025, seeks to impose excise duty on tobacco and related products like cigarette, chewing tobacco, cigars, hookahs, zarda, and scented tobacco, replacing the existing compensation cess, ‘The Health Security se National Security Cess Bill, 2025’ will be applicable on manufacturing of pan masala and other goods that the government may notify. The lower house may take up the bills for discussion on Tuesday.
TMC opposes the introduction of both bills
Trinamool Congress member Saugata Ray opposed the introduction of the two bills. He opposed the Health Security se National Security Cess Bill, 2025, stating that cess proceeds are not shared with states.
While the revenues from levy of excise on tobacco would be part of the divisible pool of tax revenues, the collection from the health and national security cess would go towards funding public health initiatives and national security while maintaining high taxation on ‘sin goods’.
What is the Central Excise Bill all about?
The Central Excise bill seeks to levy duty on cigars / cheroots / cigarettes in the range of Rs 5,000-11,000 per 1,000 sticks depending on the length. Also, it proposes a levy of 60-70% on unmanufactured tobacco and 100% on nicotine and inhalation products. This duty will be over and above the 40% GST rate that would be applicable on sin goods.
Currently, tobacco and pan masala attract 28% GST, plus a compensation cess.
“We are on track to complete the loan repayment and end the compensation cess within this fiscal,” a government source said, without disclosing the timeline as to when the cess levy would cease to exist.
At the time of the introduction of the GST on July 1, 2017, a compensation cess mechanism was put in place for 5 years till June 30, 2022, to make up for the revenue loss suffered by states on account of GST implementation.
The levy of compensation cess was later extended by four years till March 31, 2026, and the collection is being used to repay the loan that the Centre took to compensate states for the GST revenue loss during the Covid period.
On September 3, 2025, the GST Council had decided to continue with the compensation cess on tobacco and pan masala till the loans taken are repaid.
On other luxury items, the compensation cess ended on September 22, when the GST rate rationalisation was implemented with just two slabs of 5% and 18%. A 40% rate was fixed for ultra-luxury goods, aerated drinks and other demerit goods