Winning Bizness Desk
Mumbai. Cigarette prices in India are set to rise sharply from February 1, 2026, after the government increased excise duty to offset revenue losses. Market estimates suggest prices may go up by 15 to 20 percent, which could push a ₹15 cigarette stick to ₹17 or ₹18. The move follows a notification issued on December 31, signalling a major change in the tax structure on cigarettes. India already records over 10 lakh smoking-related deaths every year, while globally the number crosses 80 lakh annually.
Why cigarette prices may rise sharply
From February, excise duty on cigarettes will range between ₹2,050 and ₹8,500 per 1,000 sticks, depending on length and category. Earlier, cigarettes attracted 28 percent GST along with a compensation cess, taking the total tax burden to over 50 percent. After recent changes, GST has been raised to 40 percent, while the cess has been removed. To prevent cigarettes from becoming cheaper and to protect revenue, the government has introduced a higher, permanent excise duty.
How the new tax structure works
If excise duty had not been raised, cigarette prices would have fallen after the removal of cess. Instead, the government has ensured that the overall tax burden rises. Industry analysts say the new excise is higher than the earlier cess, increasing costs for manufacturers. Since excise is added at the factory level and GST is charged on top of that, the final retail price goes up further due to tax-on-tax impact.
- Excise duty now replaces compensation cess permanently
- GST is charged on a price that already includes excise
- Overall tax burden may rise by 20 to 30 percent
- Companies may pass on full cost to consumers
Impact on consumers and cigarette companies
Brokerage firm Jefferies estimates cigarette makers may need to raise prices by at least 15 percent to protect margins. A simple example explains the impact: if earlier total tax per cigarette was ₹6, removal of ₹2 cess and addition of ₹4 excise takes total tax to ₹8. This extra burden directly reflects in the maximum retail price.
The news has already shaken stock markets. Shares of ITC fell up to 10 percent in a single day, their sharpest fall since 2020. Godfrey Phillips, which sells Marlboro cigarettes in India, saw its stock plunge nearly 18 percent. Investors fear higher prices will reduce demand and volumes.
Revenue concerns behind the decision
The government’s move is seen as an attempt to protect tax collections. In September, GST rates on several products were cut to boost domestic consumption. At the same time, Indian exporters have been hit by a 50 percent tariff imposed by the United States on certain products. To compensate for these losses, the government has turned to sin goods like tobacco and cigarettes, where demand is relatively inelastic.
Health impact and smoking numbers
India is the world’s second-largest consumer of tobacco after China. According to the World Health Organization, about 25.3 crore Indians aged 15 years and above smoke, including nearly 20 crore men and 5.3 crore women.
- Smoking causes over 10 lakh deaths in India annually
- Total tobacco-related deaths rise to about 13.5 lakh
- One cigarette cuts life expectancy by around 20 minutes
- Smoking 10 cigarettes daily for 10 years cuts life by 500 days
Health experts say rising prices may discourage consumption, but the human cost of smoking remains alarmingly high.
