The Centre has made it known that the imposition of higher taxes on tobacco products and pan masala shall take effect from February 1, 2026, after the official notification has been issued.

Pan masala, cigarettes, tobacco, and related products will now be subject to a 40% GST under the new tax structure, while bidis will have a tax rate of 18%. In addition to the GST, the government has also levied a health cess and a national security cess on pan masala and imposed an excise duty on tobacco products. All these measures are to be carried out commencing next month.

The decision came after the approval of two important laws in Parliament in December — the Health Security and National Security Cess Bill, 2025, and amendments to excise duties on tobacco products.

Giving the reasons for the action, Union Finance Minister Nirmala Sitharaman mentioned that the 40% GST is already applicable to pan masala, and the new cess will be on the basis of production capacity of the factories. She also mentioned that the funds raised would be used for betterment of public health and security measures.

Tobacco Stocks Under Pressure

The announcement set off a strong reaction in the stock market. The major cigarette producers ITC and Godfrey Phillips India saw their shares fall considerably because it was feared that the increased taxes would cause the prices to go up and the demand to go down.

On the BSE, ITC shares went down to their lowest point in a year, while during the day Godfrey Phillips’ stock price dropped almost 10%, with the investors reflecting their concerns about sales and profits from the tax hike.

Market analysts think that the tobacco and pan masala companies will have to deal with short-term pressure due to the consumers’ lifestyle change to higher prices after the new tax regime is implemented.