Budget 2026 Expectations: Will Tobacco Products Get Costly? Facts, Tax Hikes and What to Expect

Budget 2026 Expectations: Tobacco products are receiving increased attention because the Union Budget 2026 is about to be announced. The Finance Minister Nirmala Sitharaman's budget presentation on February 1 2026, will lead to price increases for cigarettes, gutkha, pan masala and chewing tobacco because a new tax system will start on that date. The government intends to increase "sin taxes" through its Budget allocations.

Budget 2026 Expectations: Tobacco Tax Hike

The GST Council established a 40% GST rate for cigarettes, pan masala, gutkha and chewing tobacco, which replaces the previous system that combined a 28% GST with compensation cess. The government established new excise tax rates and a Health & National Security Cess in addition to this measure.
Cigarettes will now attract length-based excise duties, ranging from ₹2,050 to ₹8,500 per 1,000 sticks. Gutkha faces an effective tax burden of 91%, while scented chewing tobacco is taxed at around 82%.

Budget 2026 Expectations: Will Taxes Rise Further?

Experts believe that Budget 2026 will retain its current tax increase because the government will not reverse previous tax increases. The WHO recommends that 75% of tobacco revenue should be applied to tax policies, so the company will work to consolidate operations while improving existing systems. India currently applies tobacco taxes at a rate of 53% to its products. The retail prices will increase by 20 to 40 per cent because of additional National Health Cess and RSP-based valuation tax increases.

Budget 2026 Expectations: Impact on Cigarettes, Gutkha and Pan Masala

The prices of cigarettes, gutkha and pan masala products will increase because of new tax policies that apply to these items:

• Cigarettes: First major revision since GST 2017; premium brands may get costlier by ₹10–20 per pack.
• Pan Masala & Gutkha: Capacity-based cess combined with higher GST will hit the unorganised sector hardest.
• The government plans to reduce GST to 18% for Biris, which will provide some financial relief to users.

Budget 2026 Expectations: Industry and Consumer, What to Expect

According to CRISIL, cigarette volumes could decline 6–8% in FY27, as manufacturers pass on 80–90% of higher costs to consumers. While health advocates welcome reduced consumption among India’s 1.3 crore tobacco users, traders warn of stockpiling and black-market risks. Overall, Budget 2026 is expected to prioritise stability over sudden shocks after the February 1 tax reset.

Disclaimer- This is for informational purposes only and does not constitute tax, legal, financial, or policy advice of any kind.