Tobacco Stocks Plunge on India's New Cigarette Excise Duty Hike

The share prices of Indian tobacco companies fell sharply after the government announced a big increase in excise duties on cigarettes. This will take effect on February 1, 2026. This change replaces the expiring GST compensation cess on sin goods with new taxes aimed at keeping tax revenue from tobacco products stable. Shares of major companies like ITC Ltd. and Godfrey Phillips India dropped because there are concerns that higher prices will impact consumer demand. 

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Tax Hike Details  

The Finance Ministry notified excise duties ranging from ₹2,050 to ₹8,500 per 1,000 cigarette sticks, depending on length and type, a significant jump from previous rates of ₹200 to ₹735 per 1,000 sticks. This adjustment applies to cigarettes, cigars, cheroots, hookah tobacco, and chewing tobacco. The duties on chewing tobacco will rise to 100% from 25% in some cases. The new Health Security and National Security Cess Act, along with the Central Excise (Amendment) Act, 2025, formalises these changes, effective after the GST compensation cess ends on February 1. 

Stock Market Impact  

ITC Ltd., India's largest cigarette maker known for brands like Gold Flake, experienced the steepest fall, with shares dropping up to 4.4%, the most in nearly six years, and becoming the biggest loser on the Nifty 50 index. Godfrey Phillips India, distributor of Marlboro in the country, saw its stock plunge 4.1% to 7.7%. The FMCG index also declined by 0.6%, reflecting broader pressure on tobacco-linked firms. 

The notifications came in late on December 31, 2025. They stated that February 1, 2026, would be the start date for the new duties and cess on pan masala. Parliament approved the related bills in December 2025 to change excises on tobacco and substitutes. These measures aim to keep taxes stable after the cess withdrawal, focusing on products used by around 100 million smokers in India. 

Broader Context  

The policy change comes after the 56th GST Council decided in September 2025 to cancel the compensation cess. New rules, such as the Chewing Tobacco Packing Machines Rules, 2026, help with collecting duties based on capacity. With cigarettes potentially costing more, up to ₹72 per pack from around ₹18, manufacturers face volume risks in a market sensitive to price changes.