Centre revamps tobacco taxation, brings again excise and resets GST charges from Feb 1, 2026

The Centre has notified a sweeping overhaul of tobacco taxation and regulation, bringing again a strengthened central excise framework alongside main modifications within the Items and Companies Tax (GST) regime, with all measures set to return into pressure from February 1, 2026.

The Finance Ministry has notified February 1, 2026, because the date on which the Central Excise (Modification) Act, 2025, will take impact. The transfer formally revives excise provisions for specified tobacco merchandise, whilst GST continues to use.

Beneath the brand new guidelines, the federal government has notified chewing tobacco, jarda scented tobacco and gutkha, when manufactured with the help of packing machines and packed in pouches, beneath Part 3A of the Central Excise Act. This brings these merchandise beneath a machine-capacity-based excise obligation system, the place tax legal responsibility is set by the quantity, pace and capability of packing machines and the retail sale worth (RSP), slightly than declared manufacturing.

The framework introduces the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines Guidelines, 2026. Beneath these guidelines, producers should register and declare all packing machines, with excise obligation payable on a month-to-month foundation and required to be deposited by the sixth day of every month. The foundations are geared toward plugging evasion by linking tax on to put in manufacturing capability.

Alongside excise modifications, the federal government has issued a set of GST notifications restructuring oblique tax charges on tobacco merchandise. Beneath Notification No. 19/2025–Central Tax (Fee), and corresponding IGST and UTGST notifications, the prevailing 28% GST slab (Schedule VII) for tobacco merchandise has been fully omitted. Tobacco objects have now been redistributed between 18% GST (Schedule II) and 40% GST (Schedule III), relying on classification.

In one other vital transfer, Notification No. 03/2025–Compensation Cess (Fee) reduces the GST compensation cess on all tobacco merchandise to nil, eliminating an extra tax layer that had existed over and above GST.

Additional, Notification No. 20/2025–Central Tax introduces a brand new MRP-based valuation mechanism for GST. For chewing tobacco, filter khaini, jarda scented tobacco and gutkha, GST will now be calculated primarily based on the retail sale worth declared on the bundle, aligning GST valuation with the excise obligation framework.

Individually, the federal government has additionally notified that provisions of the Well being Safety-cum-Nationwide Safety Act, 2025 will come into pressure from February 1, 2026, including a wider regulatory dimension to tobacco oversight.

Taken collectively, the modifications mark a basic reset of tobacco taxation, combining machine-based excise, MRP-linked GST valuation, restructured GST charges and 0 compensation cess, because the Centre tightens compliance and seeks to curb long-standing tax evasion within the sector.