‘Tobacco excise duty not extra tax, revenue to be split with states’

The government is restoring the full incidence of excise duties on tobacco and its products that were carved out as the GST compensation cess in 2017, Union finance minister Nirmala Sitharaman told the Lok Sabha, reiterating that revenues thus collected would be part of the divisible pool to be shared between the Centre and states.

- Rajeev Jayaswal

Nirmala Sitharaman

Allaying apprehensions of some members in the House, the minister said: “This is not a new law, this is not an additional tax or something that the Centre is taking away. Many MPs here observed that this is a cess. This is not a cess, this is excise duty. Excise duty existed before GST.”

After an intense debate on the matter that saw participation by 28 MPs, the house passed the Central Excise (Amendment) Bill, 2025 on Wednesday.

The finance minister said the amount collected through excise duty on tobacco and tobacco products will be redistributed to the states as per the Finance Commission's recommendations. To be sure, revenues from excise duty is part of the divisible pool, whereas the Centre levies a cess for any specific purpose and retains its proceeds.