As the Winter Session of Parliament begins, the government is set to unveil important tax proposals on 1 December, focusing on pan masala, cigarettes, and other tobacco products under the Goods and Services Tax (GST) framework.
Upcoming Bills in Lok Sabha
The Finance Minister will table three key bills:
- Central Excise Amendment Bill, 2025
- Health Security and National Security Cess Bill, 2025
- Amendment to the Manipur GST Act, 2017
These measures are part of the government’s broader plan to implement GST 2.0, aimed at overhauling the taxation system for “sin goods” – products considered harmful to health, including tobacco and pan masala.
Rationale Behind the Changes
Currently, tobacco products like cigarettes, gutkha, and pan masala are taxed at 28% GST, in addition to a compensation cess and other duties, pushing the total tax burden above 50%. However, under GST regulations, the base tax rate cannot exceed 40%.
To maintain the existing total tax burden, the government plans to introduce a new cess to replace the outgoing compensation cess, which is being phased out after settlement of GST compensation loans and interest.
Key Features Under GST 2.0
- The 28% GST slab will be replaced with a 40% rate for selected sin and ultra-luxury goods.
- GST calculation will shift from transaction value to retail sale price for items like pan masala, gutkha, cigarettes, and unmanufactured tobacco.
- This adjustment is aimed at enhancing transparency, ensuring uniform taxation, and preventing under-reporting by manufacturers.
While most GST 2.0 changes came into effect on 22 September 2025, the new rules for tobacco products will be notified once all compensation cess obligations are fully settled.
Summary
The government plans to introduce new GST bills on 1 December to revise taxation for pan masala, cigarettes, and tobacco products. Key changes under GST 2.0 include a higher 40% GST rate, a new cess replacing the compensation cess, and taxing products based on retail sale price. These measures aim to simplify taxation, ensure transparency, and maintain the overall tax burden on sin goods.
Disclaimer:
This article is intended solely for educational and informational purposes. The securities or companies mentioned are provided as examples and should not be considered as recommendations. Nothing contained herein constitutes personal financial advice or investment recommendations. Readers are advised to conduct their own research and consult a qualified financial advisor before making any investment decisions.
Investments in securities markets are subject to market risks. Please read all related documents carefully before investing.