Union Budget 2026: Tobacco, Alcohol & Sin Taxes — Will Govt Raise Duties This Time?

The Indian government will increase taxes on most tobacco products from February 1, 2026. GST on cigarettes, pan masala, and gutkha will rise to 40%, supplemented by new excise duties and cesses, causing significant price hikes.

The Union government has already taken a decisive step on tobacco and so-called "sin goods" ahead of the presentation of Union Budget 2026-27, putting an end to speculation over whether duties will be raised this year.

A sharp increase in taxes on tobacco products will come into force from February 1, 2026, the very day Finance Minister presents the Union Budget, signalling the government's intent to curb consumption while mobilising additional revenue.

What Has Changed in Tobacco Taxation?

After the 56th GST Council meeting and subsequent parliamentary clearance, the Centre has revamped the tax structure for tobacco products. Cigarettes, pan masala and gutkha have been moved to a higher 40 per cent GST slab from the earlier 28 per cent.

On top of this, a new excise duty has been introduced on cigarettes, ranging from Rs 2,050 to Rs 8,500 per 1,000 sticks, depending on the length of the cigarette. Together, these measures are expected to push up cigarette prices by 15 to 40 per cent at the retail level.

The government has also done away with the GST Compensation Cess, replacing it with higher and more targeted levies under the new regime.

Product-Wise Impact: Who Pays More?

Cigarettes are set to become significantly costlier, with longer variants such as king-size cigarettes facing steeper price hikes compared to shorter, non-filter products.

Pan masala and gutkha will now attract a newly introduced Health and National Security Cess, with duties calculated based on the production capacity of manufacturing machines. Chewing tobacco will face a 100 per cent duty, hookah tobacco 40 per cent, and smoking mixtures used in pipes and cigarettes a hefty 325 per cent tax.

In contrast, bidis have received some relief, with the GST rate reduced from 28 per cent to 18 per cent.

What About Alcohol?

Alcohol for human consumption continues to remain outside the GST framework and will be governed by state excise laws. However, liquor remains a key revenue source for states, which frequently announce excise duty hikes during their annual budget exercises.

Why the Government Is Acting Now

The Centre's move is aimed at bringing India's tobacco taxation closer to the World Health Organization's recommendation of a 75 per cent total tax burden on tobacco products. Officials have also indicated that the additional revenue from these levies will be channelled towards healthcare initiatives and national security requirements.