18% excise duty on unmanufactured tobacco withdrawn; will tobacco stocks be impacted?

The government has withdrawn Central Excise duty on unmanufactured tobacco or tobacco refuse. Earlier, 18% Central Excise duty was levied on unmanufactured tobacco when it was cleared without a brand name and not packed for retail sale.

The government issued a Gazzetted notification on February 1, 2026 in this regard.

 Shashi Mathews, Partner at CMS INDUSLAW said the government's latest move is unlikely to affect tobacco stocks. 

 "The duty structure has been rationalised into two clear categories. From now on, nil excise duty will apply only to unmanufactured tobacco that is unbranded and not packed for retail sale. This will be a big relief for tobacco farmers and manufacturers in the unorganised sector. All other unmanufactured tobacco or tobacco refuse, particularly those that are branded or retail-packed, will continue to attract 18% excise duty.

From a stock market perspective, the new amendment is unlikely to impact companies like ITC and Godfrey Phillips. The change applies to unmanufactured tobacco and tobacco refuse that are unbranded and not packed for retail sale, whereas these companies deal in branded, retail-packed unmanufactured tobacco. Since their products do not fall under the exempt category, their operations, costs, and profit margins remain unaffected, and the amendment is not expected to influence their stock performance," added Mathews. 

Gyanendra Tripathi, Partner and Leader- Indirect Tax: North and West, Tax and Regulatory Advisory, BDO India said, "This would give relief to small suppliers, who clear the unmanufactured tobacco in bulk without any brand name. The branded players continue to be subjected to 18% excise duty. Also, the imports of such unmanufactured tobacco or tobacco refuse, without a brand name and not packed in a retail sale package would also be exempted from Customs Duty, to the extent of the countervailing duty (which is levied at the rate equal to central excise duty) and the Customs duty on such products would be reduced to that extent."

Aditya Bhattacharya, Partner, King Stubb & Kasiva, Advocates and Attorneys said, "Government has introduced a clear bifurcation in the excise duty treatment of unmanufactured tobacco and tobacco refuse under tariff heading 2401.  While unmanufactured tobacco that does not bear a brand name and is not packed for retail sale continues to attract nil central excise duty, a new category has been carved out for all other forms of unmanufactured tobacco, which will now be subject to an 18% excise duty," said Bhattacharya.

"Earlier, unmanufactured tobacco largely enjoyed exemption without an explicit distinction based on branding or retail packaging. The amendment now draws a sharp line between genuinely unbranded, non-retail bulk tobacco and other variants, particularly those that may carry branding or be intended for downstream commercial or retail use. This targeted insertion plugs a significant classification gap that was often used to claim blanket exemptions," added Bhattacharya.