Shares of ITC slipped nearly 2% in Thursday’s session, January 1, trading around Rs 395.60, as tobacco stocks came under pressure following fresh government notifications on additional excise duty and a new cess on tobacco and pan masala products.
What led to the decline in ITC shares?
Tobacco, cigarette, and pan masala stocks moved into focus after the government notified February 1 as the implementation date for new levies on tobacco products and pan masala. These levies will be in addition to GST and will replace the existing GST compensation cess currently imposed on sin goods.
From February 1, cigarettes, tobacco, pan masala, and similar products will attract a 40% GST, while biris will attract 18% GST, as per the notification. Alongside GST, tobacco products will now face an additional excise duty, while pan masala will be subject to a Health and National Security Cess.
New rules add to regulatory overhang
The Finance Ministry also notified the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026, tightening the regulatory framework around tobacco and pan masala manufacturing.
In December 2025, Parliament had approved two Bills that paved the way for these changes. The Central Excise (Amendment) Bill, 2025, allows the government to levy excise duty on tobacco products once the GST compensation cess ends, while the Health and National Security Cess Bill, 2025 enables a new cess on pan masala manufacturing.
What changes for tobacco products?
Currently, sin goods attract 28% GST plus a compensation cess at varied rates. Once the compensation cess is withdrawn from February 1, tobacco products will be taxed at 40% GST plus excise duty, while pan masala will attract 40% GST along with the new cess.
The excise duty structure proposed under the amended law includes:
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Rs 5,000–Rs 11,000 per 1,000 sticks on cigarettes, depending on category
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60–70% duty on unmanufactured tobacco
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100% duty on nicotine and inhalation products
This shift in tax structure has raised concerns around pricing, margins, and demand sensitivity, leading to selling pressure in tobacco stocks such as ITC.
What happened earlier?
In December 2025, Finance Minister Nirmala Sitharaman had introduced the Bills in the Lok Sabha, signalling the government’s intent to replace the GST compensation cess and retain fiscal flexibility on tobacco taxation. The formal notification on Wednesday clarified the implementation timeline, which appears to have prompted a market reaction.
Bottom line
ITC shares came under pressure as investors reacted to clarity on higher levies and regulatory changes affecting tobacco products. With the new tax regime set to take effect from February 1, tobacco stocks are likely to remain in focus as the market assesses the impact of the revised duty structure.
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