With the presentation of the Union Budget 2026–27, the Centre has introduced a major tax overhaul on cigarettes and tobacco products, triggering a sharp rise in prices across categories. Finance Minister Nirmala Sitharaman announced the new tax framework, which came into effect from February 1. Until now, cigarettes were taxed under a structure that included 28% GST along with a compensation cess, a system in place since 2017. The government has now replaced this model with a new three-layer tax structure.
Cigarette Prices Jump As New Excise
Under the revised regime, cigarettes will attract fresh excise duty, a Health and National Security cess, and a 40% increase in GST. The new structure, being described as a “tax triangle,” has significantly pushed up retail prices. Cigarettes that earlier cost around ₹10 per stick are now estimated to cost about ₹12–13, after an additional excise duty of roughly ₹2–3 per cigarette. The price impact is sharper for full packs, with a 10-stick pack that earlier sold for around ₹100 now likely to cost ₹130–140 depending on brand and retailer margins.
Bigger The Cigarette, Bigger The Hit
The tax hike is also linked to cigarette size. Cigarettes measuring 65–70 mm may see an increase of about ₹3.6–4 per stick, while 70–75 mm variants could become costlier by around ₹5.4 per stick. Non-standard and designer cigarettes have been hit the hardest, with tax increases of nearly ₹8.5 per stick. Market estimates suggest some premium variants that earlier cost ₹15–18 per stick could rise sharply once full tax pass-through happens at the retail level.
The government said the move is aimed at discouraging tobacco consumption, particularly among young users and first-time smokers, by making cigarettes significantly more expensive.
