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The Union Budget 2026-27 has introduced sweeping tax changes on tobacco products, triggering a sharp rise in cigarette prices across India. The new framework came into force from February 1 and replaces the earlier GST-plus-compensation-cess structure that had been in place since 2017. Under the revised regime, cigarettes and other tobacco products are now subject to a higher GST rate of around 40 percent, along with fresh excise duties and additional health- and security-linked levies.

Govt Pushes Anti-Tobacco Tax Strategy

The move is part of a broader strategy aimed at reducing tobacco consumption while increasing government revenue from so-called “sin goods.” Industry estimates indicate the tax restructuring could significantly raise retail prices. In some cases, cigarettes previously sold in the mid-price range may see steep jumps once the full tax burden is passed on to consumers. The government has framed the move as a public-health intervention designed to discourage smoking, particularly among younger users.

Budget Tightens Overall Sin-Goods Taxation

Alongside tobacco changes, the budget also signalled broader tightening on sin-good taxation. While alcohol pricing remains largely under state control, central policy changes, including indirect tax adjustments and compliance cost changes are expected to push retail prices higher in several states. The tax overhaul also reflects a structural shift in tobacco taxation.

Consumers Face Higher Sin Costs

Changes include recalibration of excise duties and adjustments in cess structures, following earlier removal or restructuring of older compensation cess mechanisms in parts of the sector. Analysts say the impact will be immediate for regular consumers, with higher per-stick costs translating into higher monthly spending. At the same time, policymakers expect higher tax collections unless consumption falls sharply.

Overall, Budget 2026 redraws India’s pricing landscape for sin goods, signalling a stronger fiscal and public-health push through aggressive taxation.