Amid faltering overall tax collections so far in FY26 (2025-26), Union excise duty collections are poised to reverse the recent declining trend.
The government, in the Union Budget for FY26, estimated excise duty collections at Rs 3.17 lakh crore, implying a modest on-year growth of 5.57% over the provisional collections of FY25. However, actual collections grew 9.25% on-year during April–November 2025 (against -0.61% in the same period of FY25).
This strong performance means the required growth rate for the remaining four months (December-March) is only about 0.4% to meet the Budget target
For context, excise duty collections declined by 1.66% in FY25, and recorded steeper drops of 19.16% in FY23 and 4.28% in FY24.
Broad Fiscal Slowdown
This faster growth in the first eight months of FY26 stands out against broader weakness in tax revenues. Gross tax revenue growth has been subdued at around 3.3% year-on-year during April–November 2025, far below the budgeted expectation of 12.5%.
This slowdown has impacted both direct and indirect taxes, driven by factors such as lower nominal GDP growth estimates (8% for FY26) and reduced buoyancy in collections.
Among major heads, corporate tax grew 7.78% till November (against budgeted 9.7%), personal income tax grew 6.78% (against budgeted 21.6%), Central Goods and Services Tax (CGST) grew 5.4% (against budgeted 11.2%), and customs duty declined by 7.3% on-year (against budgeted 3.1% growth).
Union excise duty accounts for approximately 7.4% of gross tax revenue.
Economists attribute the strong excise performance primarily to the Rs 2 per litre hike in excise duty on petrol and diesel each, implemented in April 2025.
Vivek Kumar, Economist at QuantEco, highlighted, “The increase in the windfall tax on petrol and diesel at the beginning of the financial year is likely to have higher growth in overall excise duty, which had recorded negative growth in the previous three financial years.
Positive Growth Projections
Gaura Sen Gupta, Economist at IDFC First Bank, projected an optimistic 20.6% growth for FY26 and 24.1% for FY27.
“In FY27, collections are expected to rise further with the new excise duty on tobacco products replacing elements of the GST compensation cess. Additionally, a Health and National Security Cess on equipment used to produce tobacco products will be implemented,” Sen Gupta said.
Sakshi Gupta, Economist at HDFC Bank, forecasted 9.9% growth in excise duty for FY26 (over provisional FY25 collections) and 16.7% in FY27 (over FY26 Budget estimates).
The government implemented a steep hike in excise duty on tobacco products (including cigarettes), effective February 1, with specific duties ranging from Rs 2,050 to Rs 8,500 per 1,000 sticks (depending on length and type), alongside revisions in related GST rates.
This is expected to provide a substantial boost to Union excise duty receipts in FY27. While ongoing GST rate rationalisation may exert some downward pressure on other indirect taxes, the tobacco-related excise changes are viewed as a key positive factor.