Finance Minister Nirmala Sitharaman on Wednesday (December 3, 2025) clarified that the tax hikes she was proposing on cigarettes was not a cess but an excise duty, which would be part of the divisible pool of taxes that are shared with the States.
The Lok Sabha passed the Central Excise (Amendment) Bill, 2025 on Wednesday (December 3).
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Delivering her reply to the debate on the Bill in the Lok Sabha, Ms. Sitharaman said that the duty on cigarettes had been higher in the pre-Goods and Services Tax (GST) regime. It was then reduced to a “nominal” rate under GST, as cigarettes also attracted a compensation cess.
With that compensation cess set to be withdrawn soon, once the government repays the interest on loans it had taken to compensate States during the COVID-19 pandemic period, the Centre has introduced this Bill to increase the base excise duty on cigarettes so that the tax incidence on them does not fall.
