Union Budget 2026 hiked cigarette taxes, raising prices by ₹25–₹55 per pack, impacting smokers and putting tobacco stocks like ITC in focus.
Cigarette prices surge after Budget 2026 as higher excise duty and health cess come into effect (Photo: File)
The Union Budget 2026 has delivered a significant blow to smokers as Finance Minister Nirmala Sitharaman announced a major overhaul of the tobacco tax regime. Effective February 1, 2026, a new excise duty and "Health and National Security Cess" have replaced the old compensation cess, pushing cigarette prices up by ₹25 to ₹55 per pack. This move, aimed at aligning with global public health standards, has triggered immediate reactions on the BSE and NSE. Investors are closely monitoring tobacco giants like ITC and Godfrey Phillips as they navigate this steeper 40% GST and length-based duty structure.
Following the presentation of the Union Budget 2026 by Finance Minister Nirmala Sitharaman, smokers and investors are facing a significant shift in the tobacco landscape. The government has announced a substantial hike in the National Calamity Contingent Duty (NCCD) and excise duties on tobacco products. As a result, cigarette prices are expected to jump between ₹25 and ₹55 per pack, depending on the cigarette length and category. This move is part of the government's dual strategy to increase revenue and discourage tobacco consumption.
The price hike is not uniform across all brands. Based on the new tax slabs, premium long-stick cigarettes will see the steepest increase. Here is the breakdown of the price surge:
As the primary players in the Indian tobacco market, ITC Limited and Godfrey Phillips India are the key stocks to watch today on the BSE and NSE. Historically, the market reacts sharply to tobacco tax hikes. While a tax increase initially leads to a knee-jerk sell-off, investors often look at the pricing power of these companies. ITC, holding a dominant market share, often manages to pass on the tax burden to consumers, maintaining its margins despite the fiscal pressure.
The hike in excise duty on tobacco is one of the highest in recent years. Public health experts have welcomed the move, suggesting that the price barrier will help reduce consumption among the youth. However, industry experts warn that excessive taxation could lead to an increase in the smuggling of illegal cigarettes, which currently accounts for a significant portion of the Indian market. The government has countered this by stating that the increased revenue will be channeled into healthcare and infrastructure projects.
When do the new cigarette prices come into effect?
The new excise duty rates typically kick in immediately or from the next fiscal day. Retailers often adjust prices within 24 to 48 hours of the Budget announcement.
Which stocks are most affected by tobacco tax hikes?
ITC, Godfrey Phillips, and VST Industries are the most sensitive stocks to any changes in tobacco taxation.
Is the tax hike applicable to Bidis as well?
Yes, the Budget 2026 has proposed a proportionate increase in duties for other tobacco products, including Bidis and smokeless tobacco, though the quantum of the hike varies.
Why does the government increase tax on cigarettes every year?
It is a "Sin Tax" designed to generate high revenue for the government while serving a public health goal of reducing tobacco-related illnesses.
