India makes smoking more expensive, new rates effective from February 1; tobacco stocks fall

India is gearing up for a hike in taxes on cigarettes, pan masala and other tobacco products that will take effect from February 1, after the government this week formally notified new excise duty and health cess rules.

Under the revised structure, these products will attract higher levies in addition to a 40% Goods and Services Tax (GST), replacing the current GST compensation cess on so-called “sin goods.”

What the new taxes mean on the ground

From February 1,
cigarettes, tobacco and similar products will attract a 40% GST rate, while biris will be taxed at 18% under GST.

On top of this, an additional excise duty will apply to tobacco products and a Health and National Security Cess will hit pan masala makers. These levies replace the existing compensation cess that was previously charged at varied rates.

The Finance Ministry also published new rules for determining capacity and collecting duties on products such as chewing tobacco and Gutkha packing machines, part of a broader regulatory framework backing the tax revamp.

Tobacco stocks slide

The announcement triggered a strong reaction from investors. Shares of major tobacco companies like ITC Ltd and Godfrey Phillips India slid sharply in early trading on Thursday after the excise duty notification, as per Business Standard.

On the Bombay Stock Exchange, ITC shares fell about 6%, while Godfrey Phillips dropped nearly 10%, with some local reports saying these tobacco counters hit near 52-week lows.

Market analysts say the higher duty structure could squeeze profit margins for cigarette makers and potentially push up retail prices by Rs 2–3 per stick for certain products, which might, in turn, dampen demand.

For India’s estimated 100 million smokers, the combined impact of higher excise duty and GST is likely to be felt directly at the checkout.