Parliament approves Central Excise (Amendment) Bill, 2025 to raise duty on tobacco

Parliament on Thursday approved the Central Excise (Amendment) Bill, 2025, with the Rajya Sabha returning it to the Lok Sabha for final passage. The legislation seeks to revise excise duties on tobacco and related products following the expiry of the GST compensation cess.

Replying to the discussion in the Rajya Sabha, Union Finance Minister Nirmala Sitharaman said the enhanced duty on cigarettes is part of the regular excise structure and not a cess. “This is not a cess but excise duty. The amount will be redistributed to the States as per the Finance Commission's recommendations,” she said.

The Finance Minister also assured that tobacco farmers and beedi workers will not be adversely affected by the amendments. She highlighted that several schemes, including the crop diversification scheme, are in place to support farmers shifting away from tobacco. Between 2017-18 and 2021-22, more than 1.12 lakh acres of land have moved to other crops, she noted.

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Support for beedi workers and farmers

Sitharaman said India has 49.82 lakh registered beedi workers and labour welfare schemes are being implemented nationwide through dedicated welfare organisations. Addressing taxation changes under GST, she added that when GST was introduced in 2017, the Centre agreed to compensate states if their revenues fell short of assured levels.

She explained that a small portion of excise on certain items was channelled to the GST compensation fund, and because tobacco products fell under the 28 per cent slab, an additional compensation cess ensured states continued to receive adequate revenue.

Aligning with WHO standards

The Minister pointed out that despite GST and the cess, taxes on tobacco products remained below the benchmarks recommended by the World Health Organisation (WHO). “India's total tax incidence on cigarettes is around 53 per cent of the retail price, while the WHO benchmark is 75 per cent,” she said, adding that the revised rates aim to reduce affordability and strengthen public health outcomes.

The Bill was passed in the Lok Sabha on Wednesday.