Central Excise (Amendment) Bill 2025: End of GST Compensation Cess, What's Next for Tobacco and Sin Goods?

FinanceMinister Nirmala Sitharaman made a historic move in the Taxation System by introducing the Central Excise (Amendment) Bill, 2025, in the Lok Sabha on December 1, 2025, along with the Health Security se National Security Cess Bill, 2025. These Legislative Measures represent a key shift away from the temporary mechanism of GST compensation in India. The Bill intends to help ongoing support for a taxation system on Goods, and redirect the revenue generated from that system toward National Security & Public Health.

The Central Excise (Amendment) Bill, 2025: Tobacco Taxation

Currently, the Central Excise Amendment Act is in the process of replacing the GST Compensation Cess on tobacco products, including Cigarettes, Chewing Tobacco, Cigar, Hukkah, Zarda, and Scented Tobacco. According to the objectives for establishing the Bill, it intends to provide fiscal space to the Government to raise the rate of Central Excise Duty on tobacco products and maintain an equal level of taxation on tobacco cases when the GST Compensation Cess is removed.

What Changes for Tobacco Products?

The legislative proposal includes a new excise tax rate of between Rs 5,000 - 11,000 per 1000 pieces for all types of smoking products, including Cigars, Cheroots and Cigarette. Once the compensation cess ends, sale of all the smoking products together with Tobacco and related products will attract GST and also an Excise Duty.

In addition to the above, there is a 28% GST rate which has been done away with so that all the sin goods will now be taxed at 40% the maximum rate of GST. Therefore, there will be no net change on the total tax burden.

The Health Security se National Security Cess Bill, 2025: A Dual-Purpose Levy

While other tobacco items will come under the excise tax system, pan masala will be treated differently. The bill places an additional tax on certain products, including pan masala, and gives the central government authority to specify any item on which a tax is charged. The purpose of this cess is to put money towards both public health programs and national security.

What is the Process?

The cess is to be imposed on top of the duties or other taxes imposed on these products by laws currently applicable. Businesses must make a self declaration of the equipment or processes they use at their place of business and will compute total cess on all locations. After the full implementation, pan masala will be taxed using GST and the Health Security se National Security Cess and therefore the total tax amount will not be different from what it currently is.

The taxation of sin goods will remain constant. Revenue collected through taxation continues to support both government and public health initiatives. The fundamental change in this area is that the legal structure will go from being based on temporary emergency responses to being permanent fiscal policy tools, as well as going from revenue collection to the generation of revenue for a specific purpose. The upcoming debates within India’s Parliament will help answer two questions: Will the proposed laws pass? What will be the overall balance between India’s fiscal requirements and public health objectives?

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