Union Budget 2026: Significant Price Increases for Pan Masala and Cigarettes from February 1

As January concludes, February 2026 will bring several important changes affecting various sectors. Notably, prices for pan masala and cigarettes are expected to increase starting from February 1, 2026, following the government’s decision to raise taxes on these tobacco products.

New Excise Duty and Tax Structure Implementation

Early in 2026, the government introduced a new excise duty and cess structure to replace the existing GST compensation cess. Reports indicate that from February 1, higher taxes will apply to tobacco items including pan masala, alongside the prevailing GST rates.

In January, the Finance Ministry released regulations related to production capacity evaluations and tax collection for chewing tobacco, zarda, and gutkha packaging machinery. These measures follow the passage of two bills in December 2025, which authorized new health and national security cesses on pan masala and increased excise duties on tobacco products.

Impact on Cigarette Pricing and Industry

The revised tax framework will cause cigarette prices to rise significantly. Excise duties will range from ₹2,050 to ₹8,500 per 1,000 sticks depending on cigarette length, in addition to the existing 40% GST. This increase is expected to affect tobacco manufacturers’ profit margins, potentially leading to higher retail prices.

Consequently, consumers can anticipate increased costs for cigarettes, pan masala, and gutkha products.

Sales Forecast and Market Impact

A report from CRISIL highlights that the revised duties may lead to a reduction in cigarette sales. Currently, cigarettes are subject to a 28% GST along with various compensation cesses. Starting February 1, these cesses will be removed and replaced with a variable excise duty based on cigarette length.

CRISIL projects this tax adjustment could result in a 6–8% decline in domestic cigarette sales during the upcoming financial year.

Key Takeaways

  • From February 1, 2026, higher taxes will be imposed on pan masala and cigarettes.
  • The government replaced the GST compensation cess with a new excise duty and cess structure.
  • Excise duties on cigarettes will range between ₹2,050 and ₹8,500 per 1,000 sticks based on length, in addition to 40% GST.
  • New regulations also affect chewing tobacco, zarda, and gutkha packaging machinery tax collection.
  • CRISIL forecasts a 6–8% decline in domestic cigarette sales due to these tax changes.