Govt. notifies February 1 as the end of GST compensation cess, start of new tobacco tax regime

admin — Thu, 01 Jan 2026 07:41:00 +0000

The cess was originally introduced for a period of five years to compensate States for any loss arising out of the implementation of GST. File.
| Photo Credit: Getty Images/iStockphoto

The Ministry of Finance on Thursday (January 1, 2026) issued a series of notifications that would bring into effect the new taxation regime for tobacco products from February 1, 2026.

First of all, it notified that the Central Excise (Amendment) Act, 2025, passed in the recently-concluded Winter session of Parliament, would come into force from February 1, 2026. This Act specifies new rates of excise duty on tobacco products. It also notified that the provisions of the Health Security se National Security Act, 2025, which currently levies a cess on the manufacture of pan masala, will come into force from February 1, 2026.

In an accompanying FAQ note, the Ministry explained that, under the Goods and Services Tax regime, the excise duty on cigarettes had so far been rendered a nominal amount of a “fraction of a paisa” per cigarette stick, and that the GST compensation cess rate on tobacco products had not been increased since it was implemented in July 2017.

“For India, affordability has either stagnated or increased in the past decade, meaning cigarettes have not become more expensive relative to consumers’ purchasing power,” the note said. “This is contrary to global public-health guidance, which emphasises annual increases in specific excise duties to ensure that real cigarette prices rise faster than incomes.”

At the same time, the Ministry of Finance also notified February 1, 2026 as the date from which the GST compensation cess would cease to exist. The cess was originally introduced for a period of five years to compensate States for any loss arising out of the implementation of GST.

However, due to the COVID-19 pandemic, the cess collections were not enough to compensate the States and so the Centre borrowed money to compensate them. The cess, which was to end in 2022, was extended until 2026, with the proceeds being used to repay the loan.

Restoring fiscal space for the States

With the impending end of the loan, the government on September 22, 2025, removed the incidence of the cess on most items except tobacco items. From February 1, 2026, the cess will no longer apply on these items either, effectively ending it.

At the same time, the Finance Ministry also notified the new GST rates for tobacco products. Bidis have been moved to the 18% category from the now-defunct 28% slab. All other tobacco products have been moved to the 40% slab. These new rates will be effective from February 1, 2026.

Finally, the Ministry also introduced a new valuation mechanism for tobacco products such as chewing tobacco, filter khaini, jarda, scented tobacco, gutkha, etc, whereby the GST value would be determined based on the retail sale price declared on the package.

Regarding the Health Security se National Security Act, 2025, the Ministry justified the inclusion of the national security aspect by saying that conventional tax revenues cannot always guarantee funding for national security functions, and so a dedicated cess is needed for the purpose.

“General tax revenues are subject to competing developmental priorities and cannot always guarantee sustained long-term funding for core national-security functions,” the FAQ note said. “A dedicated purpose-specific cess enables the Union to create a non-lapsable, predictable financial stream that supports multi-year security preparedness, technological upgradation, capacity creation, and advanced equipment procurement — without increasing the tax burden on the general population or raising broad-based rates such as GST.”

Published – January 01, 2026 01:11 pm IST

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In fresh high, gross GST revenues shoot past ₹2.1 lakh crore in April

admin — Wed, 01 May 2024 08:07:55 +0000

Revenues from domestic transactions grew 13.4%, the Finance Ministry said, while goods imports yielded an 8.3% uptick in the indirect tax collection. File
| Photo Credit: K.V.S. Giri

Year-end compliances lifted India’s gross Goods and Services Tax (GST) revenues past a record ₹2.1 lakh crore in April, reflecting a 12.4% growth over the previous record tally of ₹1.87 lakh crore in the same month last year. Net of refunds, GST revenues for the month were at ₹1.92 lakh crore, 17.1% higher than April 2023’s collection.

Revenues from domestic transactions grew 13.4%, the Finance Ministry said, while goods imports yielded an 8.3% uptick in the indirect tax collection, helping GST inflows “breach the landmark milestone of ₹2 lakh crore”.

This marks a rebound in revenues from goods imports that had contracted 5% in March, while domestic transactions’ growth weakened in April relative to the 17.6% uptick recorded in the previous month. Overall, gross GST revenues had grown at a slower pace of 11.5% in March, while net revenues were up 18.4%, slightly faster than April’s growth in the net kitty.

GST Compensation Cess collections also hit an all-time high of ₹13,260 crore, which included ₹1,008 crore collected on imported goods. The Cess is levied on select goods like automobiles and tobacco products over and above the peak GST rate of 28%.

Initially introduced for five years to compensate States for revenue losses owing to the 2017 switch to the GST regime, the Cess is now being utilised to repay loans taken during the pandemic to recompense States amid a lockdown-triggered collapse in revenues.

The Ministry emphasised that there had been a positive performance across components, pointing to Central Goods and Services Tax (CGST) revenues of ₹43,846 crore, State GST revenues of ₹53,538 crore and Integrated Goods and Services Tax (IGST) inflows of ₹99,623 crore. The IGST collections included ₹37,826 crore collected on imported goods.

“The Central government settled ₹50,307 crore to CGST and ₹41,600 crore to SGST from the IGST collected. This translates to a total revenue of ₹94,153 crore for CGST and ₹95,138 crore for SGST for April, 2024 after regular settlement,” the Ministry statement said.

Four States, including the erstwhile State of Jammu and Kashmir, Arunachal Pradesh and Sikkim, recorded a contraction in revenues last month. Eight States saw muted growth relative to the 13.4% overall growth in domestic revenues, with Jharkhand (3%), Uttarakhand (4%) and Tamil Nadu (6%) seeing the weakest growth. Kerala and Karnataka, both registered a 9% increase in revenues, while Madhya Pradesh and Telangana collections grew 11% each.

Revenues in Gujarat, Maharashtra and West Bengal grew close to the national average at 13%. Mizoram reported the highest growth at 52%, followed by Assam (25%) and Delhi, Bihar and Goa, each of which clocked 23% growth. Haryana reported a 21% rise in revenues, while the growth was 20% for Tripura, 19% for Uttar Pradesh, and 17% for Odisha. Revenues in strife-affected Manipur also reported a 15% uptick.

“A significant reason for this growth could be linked to deadline for GST audits and corresponding notices issued during this year,” said Abhishek Jain, partner and national head for indirect tax at KPMG.

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GST Compensation Cess – Artifex.News

Govt. notifies February 1 as the end of GST compensation cess, start of new tobacco tax regime

In fresh high, gross GST revenues shoot past ₹2.1 lakh crore in April