Centre Unveils Two New Tax Bills to Overhaul 'Sin Goods' Levies Ahead of GST Cess Expiry
Union finance minister Nirmala Sitharaman said that the move provides for a new central excise duty to retain high taxes on such products, avoiding revenue losses after expiry of the cess
New Delhi: Ahead of next year's phase-out of a goods and services tax (GST) compensation cess, India on Monday unveiled two new tax bills in Parliament — Central Excise Duty Bill and Health Security To National Security Bill—aiming to overhaul levies on ‘sin goods’ such as tobacco, pan masala and other similar items as well.
The move of the government, however, aims for a new central excise duty to retain high taxes on such products, avoiding revenue losses after expiry of the cess. These bills, part of a broader tax realignment before GST compensation provisions lapse, may go next to parliamentary panels for review before facing a vote next year, where approval is likely.
As per the Central Excise Duty Bill, it will replace the GST compensation cess on cigarettes, chewing tobacco, cigars, hookahs, zarda and scented tobacco and others alike. It also seeks to give the government the fiscal space to increase the rate of central excise duty on tobacco and tobacco products so as to protect tax incidence.
While introducing the bills, Union finance minister Nirmala Sitharaman said that the move provides for a new central excise duty to retain high taxes on such products, avoiding revenue losses after expiry of the cess. The GST compensation cess is an extra levy on ‘sin' and luxury goods that compensates Indian states for revenue loss after the central government rolled out the GST in 2017.
“Excise duties under the new legislation, called the Central Excise (Amendment) Bill, 2025, will range from 60-70 per cent, while specific duties on cigarettes will depend on their length and whether they use filters. Compensation cess levied on tobacco and tobacco products, wherever applicable, will be discontinued once interest payment obligations and loan liabilities under the compensation cess account are completely discharged,” Sitharaman said in a statement.
The finance minister also introduced a bill providing for a separate cess on tobacco and pan masala and any other goods the government may notify in the future. The new plan ensures that once the compensation cess stops, the effective tax burden on tobacco and pan masala will not fall. Instead of relying on the old GST-linked levy, the government would use central excise and a separate cess to maintain revenue from these products.
Besides, the new levy laid out in the Health Security and National Security Cess Bill 2025, is also expected to fund health programmes and national security needs, while keeping high-risk products expensive after the GST compensation cess is withdrawn. This health-security cess will sit on top of all existing taxes.
“Manufacturers must file self-declared details of every machine or production process at each plant. Authorities will then compute the cess separately for every location, tying the levy to the scale of installed manufacturing capacity and notified processes. This will include an assessment of machines, processes, and all aspects linked to production rather than the actual output, which currently is declared by the manufacturers to plug the tax leakage,” the bill stated.
