LS passes Central Excise Amendment Bill 2025; steep hikes on tobacco duties

The Lok Sabha on Wednesday passed the Central Excise (Amendment) Bill, 2025, which replaces the existing GST compensation cess on tobacco products with increased central excise duties.

The bill, introduced on December 1, amends the Central Excise Act, 1944, to adjust tax rates while discontinuing the compensation cess once its liabilities are settled.

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Since GST’s introduction in 2017, many central excise duties were repealed except for select items like tobacco, which remain subject to GST, compensation cess, and excise duty. The compensation cess was designed to offset revenue losses for states.

Finance Minister Nirmala Sitharaman explained, “The bill provides fiscal space to increase central excise duty on tobacco products so as to protect tax incidence,” ensuring the overall tax burden remains stable post-cess phaseout.

Replying to the debate while moving the bill for passing in the Lok Sabha, she clarified that tobacco farmers would be encouraged to diversify to alternative crops.

She explained that the government’s intention to maintain high tax incidence on tobacco would not negatively impact farmers. She noted that existing government programs are already in place to support farmers in transitioning away from tobacco cultivation.

The government has been implementing a Crop Diversification Programme (CDP) since 2015-16, a sub-scheme of the Rashtriya Krishi Vikas Yojana (RKVY), in 10 tobacco-growing states to help farmers shift to alternative crops like pulses, oilseeds, and various horticultural products. This ongoing initiative provides states with the flexibility to offer financial and technical support to farmers for adopting new cropping systems.

The bill enforces significant tax hikes, including raising the duty on unmanufactured tobacco from 64% to 70%.

Excise duty on cigarettes will surge from Rs 200-735 per thousand to between Rs 2,700 and Rs 11,000. Duty on chewing tobacco quadruples to 100%, hookah/gudaku tobacco increases to 40%, and smoking mixtures see a jump to 325%.

This legislation represents a crucial step toward discouraging tobacco consumption through higher taxes while safeguarding state revenues. It also reflects the government’s ongoing efforts to modernize India’s indirect tax structure and regulatory environment for tobacco products.