New Tax Bite For Smokers: Cigarettes To Get Pricier From Feb 1

New Delhi: The Centre has moved to raise excise duty on tobacco products, including cigarettes, from February 1, 2026. The new levy comes on top of the existing goods and services tax (GST) and is part of broader changes after the repeal of the old GST compensation cess. The government says the aim is to rationalise the tax structure and address public health concerns linked to tobacco use.

What exactly changes for smokers?

Under the new rules, cigarettes will be hit with a specific excise duty ranging between Rs 2,050 and Rs 8,500 for every 1,000 sticks, depending on length. This is in addition to the 40 per cent GST already charged on most tobacco products. Bidis, however, will continue to attract a lower GST rate of 18 per cent. The earlier compensation cess on these products will be withdrawn on the same day.

How are the markets reacting?

The sharp tax rise rattled markets on the first trading day of 2026. Shares of major tobacco firms, including ITC and Godfrey Phillips India, slumped as investors priced in potential hit to sales and margins. ITC’s stock dipped to its lowest in months, while Godfrey Phillips saw steep declines. The slump in tobacco stocks also pulled down the broader FMCG segment in early trade.

Who will this affect the most?

With more than 100 million smokers in the country, the tax move is expected to push up retail prices of cigarettes and other tobacco items. Analysts say smokers may feel the pinch in pockets as manufacturers adjust prices to absorb higher levies. The change could also influence consumption patterns over time.

What's next for tobacco taxation?

The excise duty changes come after Parliament cleared bills last December to allow a Health and National Security Cess on pan masala and the new excise regime on tobacco products. Officials have signalled that these levies are part of a long-term shift in how sin goods are taxed, including tighter rules on packaging and warning labels to discourage use.

The tax hike takes effect from February 1, giving companies and retailers just weeks to adjust before the new fiscal rules kick in.