--- title: "New GST on Cigarettes 2026: 40% + Cess Rate on Tobacco Products" description: "New GST rate on cigarettes in 2026 is 40% plus cess on all cigarette and tobacco brands. Simplify GST billing with Busy and apply the right rate every time." canonical: "https://busy.in/gst-rates/cigarettes/" author: "Hitesh Aggarwal" published: "2025-05-06T09:00:30.000Z" category: "GST Rates" --- - Cigarettes are taxed at **40% GST** effective 1st February 2026. - The earlier **28% GST + Compensation Cess** structure has been discontinued. - Compensation Cess was abolished on 31st January 2026. - A **per-stick Additional Excise Duty** has replaced the earlier cess system. - Total tax burden (GST + Excise + NCCD) can account for 65% to 75% of the retail price. - ITC is available on GST but not applicable to the abolished cess structure. # GST on Cigarettes in India (2026): Updated Tax Structure, Excise Duty & Compliance Guide The cigarette GST rate in India has undergone a significant restructuring under GST 2.0 reforms. With the shift to a 40% GST slab and the introduction of a per-stick Additional Excise Duty, the overall tax framework has become more streamlined yet stricter. Understanding the updated cigarette GST rate is essential for manufacturers, retailers, and consumers to stay informed about pricing and compliance obligations ## **Revised GST Rate on Cigarettes (Effective 1st February 2026)** The taxation structure for cigarettes in India has undergone a major overhaul following the **GST 2.0 reforms** and the **Union Budget 2026**. Effective **1st February 2026**, the earlier system of **28% GST plus Compensation Cess** has been replaced with a **40% GST slab** along with a newly introduced **per-stick Additional Excise Duty**. The Compensation Cess was officially abolished on **31st January 2026**, after state compensation-related borrowings were fully repaid. To maintain revenue neutrality and discourage tobacco consumption, the government introduced a higher GST “sin tax” slab along with a mandatory excise levy. ### **Updated GST Rates on Cigarettes** | HSN Code | Description | GST Rate (From Feb 2026) | GST Rate (Before Feb 2026) | | --- | --- | --- | --- | | 2402 2010 | Cigarettes containing tobacco | 40% + Additional Excise Duty | 28% + Compensation Cess | | 2402 9010 | Cigarettes of tobacco substitutes | 40% + Additional Excise Duty | 28% + Compensation Cess | ## **Additional Excise Duty on Cigarettes (Per- Stick Structure)** Under amendments to the Central Excise Act, the earlier variable Compensation Cess has been replaced by a fixed **per-stick Additional Excise Duty**, based on the length and type of cigarette. ### **Additional Excise Duty Rates** | Type of Cigarette (Length) | Excise Duty (Per 1,000 Sticks) | Approximate Per Stick Levy | | --- | --- | --- | | Up to 65 mm (Non-Filter) | ₹2,050 | ~₹2.05 | | Up to 65 mm (Filter) | ₹2,100 | ~₹2.10 | | 65 mm to 70 mm (Filter) | ₹3,600 – ₹4,000 | ~₹3.60 – ₹4.00 | | 70 mm to 75 mm (Filter) | ₹5,400 | ~₹5.40 | | Exceeding 75 mm / Non-standard | ₹8,500 | ~₹8.50 | ## **Key Regulatory Changes Under GST 2.0** ### **1\. RSP-Based Valuation** GST is now calculated on the **Retail Sale Price (MRP)** printed on the pack instead of the earlier transaction value between manufacturer and distributor. ### **2\. Total Effective Tax Burden** The combined effect of: - 40% GST - Additional Excise Duty - National Calamity Contingent Duty (NCCD) results in an overall tax impact of approximately **65% to 75% of the final retail price**, especially for premium brands. ### **3\. Revision in Bidi Taxation** GST on bidis (HSN 2403) has been reduced from 28% to **18%** under the revised structure. Live Demo Available Today ## Old Cess Removed? Update Item Tax Setup Trusted by 6,00,000+ Users 4.6 Google Rating \* No credit card required ## **Compliance Requirements for Cigarette Businesses** Manufacturers, wholesalers, and retailers must: - Register under GST - Charge 40% GST on MRP-based valuation - Pay applicable Additional Excise Duty - File monthly GST returns - Maintain proper records for audits The revised structure increases compliance complexity due to the presence of multiple tax components. ## **Input Tax Credit (ITC) Under the New Structure** Under the revised system: - ITC can be claimed on GST paid on business inputs. - Compensation Cess is no longer applicable (abolished from 31st January 2026). - Additional Excise Duty must be paid as applicable and cannot be offset against GST ITC. ## **Conclusion** The GST on cigarettes in India has shifted from a 28% + Compensation Cess model to a simplified but higher **40% GST slab combined with Additional Excise Duty**. The objective remains the same: discourage tobacco consumption while protecting government revenue. With RSP-based valuation and per-stick excise duty, pricing and compliance have become more structured but require careful tax planning and record-keeping. ## About the author **Hitesh Aggarwal** As a Chartered Accountant with over 12 years of experience, I am not only skilled in my profession but also passionate about writing. I specialize in producing insightful content on topics like GST, accounts payable, and income tax, confidently delivering valuable information that engages and informs my audience. ## Frequently asked questions ### What is the GST on cigarettes in India in 2026? Cigarettes are taxed at 40% GST effective 1st February 2026. Compensation Cess has been abolished. ### Is Compensation Cess still applicable on cigarettes? No. Compensation Cess was discontinued on 31st January 2026 and replaced with a per-stick Additional Excise Duty. ### How is GST calculated on cigarettes now? GST is calculated at 40% on the Retail Sale Price (MRP) printed on the pack, not on the transaction value. ### What is the Additional Excise Duty on cigarettes? It is a fixed per-stick duty based on cigarette length and type, ranging from approximately ₹2.05 to ₹8.50 per stick. ### Can businesses claim ITC on cigarette taxes? ITC can be claimed on GST paid on inputs. However, Additional Excise Duty cannot be adjusted against GST liability. ### What is the GST rate on bidis? GST on bidis (HSN 2403) has been reduced to 18% under the revised structure. ### Are e-cigarettes taxed under GST? E-cigarettes remain banned in India. 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