Excise Duty in India – Meaning, Types & FY 2025–26 Rates

What is Excise Duty?

Excise duty is a tax imposed on the manufacture and production of goods within India. It is different from customs duty, which is levied on imported goods. The responsibility of paying excise duty lies with the manufacturer or producer, but it is ultimately passed on to the consumer.

Before the introduction of GST, excise duty was governed by the Central Excise Act, 1944 and administered by the Central Board of Indirect Taxes and Customs (CBIC). Today, excise duty is still applicable to select goods like alcohol, fuel, and tobacco.
 

Products Still Under Excise Duty

Although Excise Duty has been largely replaced by GST, it remains applicable to a few special category products, including:

• Petroleum products (Petrol, Diesel, Kerosene, Natural Gas)
• Alcoholic beverages (Manufactured within India)
• Tobacco products (Cigarettes, Bidis, Chewing Tobacco)

For other goods, GST has replaced Excise Duty, making compliance easier for small businesses.

Types of Excise Duty

Before GST, there were three major types of Excise Duty in India:

• Basic Excise Duty (BED) – Levied under the Central Excise Act, 1944 on goods manufactured in India.
• Special Excise Duty (SED) – Additional tax imposed on specific goods.
• Additional Excise Duty (AED) – Charged on certain items to distribute tax revenue between the Centre and States.

Post-GST, only Basic Excise Duty applies to certain goods.

Here's the updated version with penalties for non-payment of excise duty and four FAQs at the end:

Who Needs to Pay Excise Duty?

If your business manufactures goods falling under the Excise Duty category, you are liable to pay this tax. Typically, the following entities must comply:

• Manufacturers of excisable goods
• Entities removing goods for commercial use from a factory or warehouse
• Dealers selling petroleum, alcohol, or tobacco

Since GST now covers most goods and services, Excise Duty applies only to specific items.

How is Excise Duty Calculated?

Excise duty is calculated based on:

• Value-Based (Ad Valorem) – A percentage of the product's sale price.
• Quantity-Based (Specific Duty) – Fixed duty per unit (e.g., per liter or per kilogram)
• Combination of Both – A mix of value-based and quantity-based taxation.

For example, if a manufacturer produces 1,000 liters of liquor, and the excise duty is ₹100 per liter, the total excise duty payable is:

1,000 × ₹100 = ₹1,00,000.

The exact rates are decided by the government and are subject to periodic changes.

How to Pay Excise Duty?

If you are liable to pay Excise Duty, follow these steps:

1. Obtain Excise Registration – Businesses must register with the Central Board of Indirect Taxes and Customs (CBIC).

2. Determine the Excise Rate – Check applicable rates on excisable goods.

3. File Excise Duty Returns – Businesses must file ER-1, ER-2, ER-3 returns (depending on business type).

4. Make Online Payment – Payment is made through the CBIC website using online banking or challans.

Post-GST, Excise Duty returns are mainly required for businesses dealing in petroleum, alcohol, and tobacco products.

Penalties for Non-Payment of Excise Duty

Failure to pay excise duty can lead to severe legal consequences:

• Interest on Delayed Payment – Interest is charged on unpaid excise duty as per government rates.
• Monetary Penalty – A penalty ranging from ₹200 per day to a maximum of ₹10,000 may be imposed.
• Seizure of Goods – Authorities can confiscate products if duty is not paid.
• Prosecution & Imprisonment – In serious cases, businesses may face legal action and imprisonment for up to seven years.

It’s necessary to comply with excise duty regulations to avoid unnecessary financial losses and legal trouble.

Excise Duty vs. GST: Key Differences

For most businesses, GST has simplified taxation, eliminating Excise Duty compliance.

Benefits of GST Over Excise Duty for Small Businesses

Since the introduction of GST, small businesses have benefited from:

• Simplified tax structure (No need for multiple indirect taxes)
• Reduced compliance burden (No excise registration needed for most businesses)
• Input Tax Credit (ITC) availability (Eases tax burden and reduces costs)

For small businesses that don’t deal in excisable goods, GST has made taxation much more convenient.

Differences between Custom Duty and Excise Duty

Although both custom duty and excise duty are indirect taxes that generate government revenue, they differ significantly in when and where they are levied, as well as who pays them. 

At its core, custom duty applies to international trade, while excise duty applies to domestic production. Custom duty is charged on goods entering or leaving a country at the point of entry (such as a port or airport), and is usually paid by the importer or exporter. Its primary goals are to regulate imports and exports, protect local industries, and generate revenue. 

In contrast, excise duty is levied on goods manufactured within the country before they reach the market. This tax is paid by the manufacturer or producer, but the cost is typically passed on to consumers as part of the final price. Excise duty often targets specific products, such as alcohol, tobacco and petroleum, to both raise revenue and, at times, discourage consumption. 

Here’s a quick comparison:

• Stage of levy: Custom duty at borders; excise duty at manufacturing stage.
• Goods covered: Custom duty on imported/exported goods; excise duty on domestically produced goods. 
• Payer: Importers for customs; manufacturers for excise. 
• Purpose: Customs help manage international trade; excise often targets domestic industry behaviour and revenue. 

In summary, the main distinction is where the tax is applied, at borders for imports/exports or at the factory gate for local production, reflecting different fiscal and policy objectives. 

Conclusion

Excise Duty was once a major tax for manufacturers, but with GST in place, it now applies only to specific goods like alcohol, tobacco, and petroleum products. If your business deals in these items, you must still comply with Excise Duty regulations. However, for most small businesses, GST has replaced Excise Duty, making tax compliance much easier.

Staying informed about tax regulations helps avoid penalties and ensures smooth business operations. If you deal in excisable goods, make sure to follow the correct Excise Duty filing and payment process to stay compliant.