Winter Session: Centre to introduce bills to replace GST compensation cess on tobacco, pan masala on Day 1
Union Finance Minister Nirmala Sitharaman to introduce Central Excise Amendment Bill, 2025, and The Health Security se National Security Cess Bill, 2025 in Lok Sabha
- Nov 30, 2025,
- Updated Nov 30, 2025 7:53 PM IST
On the first day of the Winter Session of Parliament on December 1, the government plans to introduce bills on the taxation of pan masala, cigarettes and tobacco under the goods and services tax.
Finance minister Nirmala Sitharaman is scheduled to introduce the Central Excise Amendment Bill, 2025, and The Health Security se National Security Cess Bill, 2025 in Lok Sabha on Monday as per the list of business. The finance minister will also move a bill to amend the Manipur Goods and Services Tax Act, 2017.
The bills come after the restructuring of the goods and services tax as part of the GST 2.0 reforms in September this year, where an alternate mechanism to tax tobacco products and pan masala was finalised. A new cess is likely to be levied in lieu of the compensation cess, which will ensure that the tax incidence on these sin goods remains the same as before.
“Smt. Nirmala Sitharaman to move for leave to introduce a bill to augment the resources for meeting expenditure on national security and for public health, and to levy a cess for the said purposes on the machines installed or other processes undertaken by which specified goods are manufactured or produced and for matters connected therewith or incidental thereto. Also to introduce the Bill,” said the list of business for Lok Sabha on December 1.
At present, tobacco products, including cigarettes, pan masala, gutkha and chewing tobacco attract a 28% GST along with a compensation cess and other duties. The overall tax burden on these sin goods is typically over 50% and under GST, the maximum tax rate can only be 40%.
The GST Council in its meeting in September had decided to do away with the 28% rate and to replace it with a 40% rate on specified sin and ultra-luxury products. GST would also be levied on the retail sale price instead of the transaction value on pan masala, gutkha, cigarettes, unmanufactured tobacco and other tobacco products.
“Under GST, 40% is the maximum levy which can be charged. For the balance, we will find some mechanism to keep the incidence at the same level as now,” Sanjay Kumar Agarwal, former Chairman, Central Board of Indirect Taxes and Customs (CBIC) had explained to Business Today in an interview.
While the other GST rate changes had come into effect from September 22, the rate change on tobacco products was to come into effect at a later notified date once the loan and interest payment obligations under the compensation cess account are completely discharged.
On the first day of the Winter Session of Parliament on December 1, the government plans to introduce bills on the taxation of pan masala, cigarettes and tobacco under the goods and services tax.
Finance minister Nirmala Sitharaman is scheduled to introduce the Central Excise Amendment Bill, 2025, and The Health Security se National Security Cess Bill, 2025 in Lok Sabha on Monday as per the list of business. The finance minister will also move a bill to amend the Manipur Goods and Services Tax Act, 2017.
The bills come after the restructuring of the goods and services tax as part of the GST 2.0 reforms in September this year, where an alternate mechanism to tax tobacco products and pan masala was finalised. A new cess is likely to be levied in lieu of the compensation cess, which will ensure that the tax incidence on these sin goods remains the same as before.
“Smt. Nirmala Sitharaman to move for leave to introduce a bill to augment the resources for meeting expenditure on national security and for public health, and to levy a cess for the said purposes on the machines installed or other processes undertaken by which specified goods are manufactured or produced and for matters connected therewith or incidental thereto. Also to introduce the Bill,” said the list of business for Lok Sabha on December 1.
At present, tobacco products, including cigarettes, pan masala, gutkha and chewing tobacco attract a 28% GST along with a compensation cess and other duties. The overall tax burden on these sin goods is typically over 50% and under GST, the maximum tax rate can only be 40%.
The GST Council in its meeting in September had decided to do away with the 28% rate and to replace it with a 40% rate on specified sin and ultra-luxury products. GST would also be levied on the retail sale price instead of the transaction value on pan masala, gutkha, cigarettes, unmanufactured tobacco and other tobacco products.
“Under GST, 40% is the maximum levy which can be charged. For the balance, we will find some mechanism to keep the incidence at the same level as now,” Sanjay Kumar Agarwal, former Chairman, Central Board of Indirect Taxes and Customs (CBIC) had explained to Business Today in an interview.
While the other GST rate changes had come into effect from September 22, the rate change on tobacco products was to come into effect at a later notified date once the loan and interest payment obligations under the compensation cess account are completely discharged.