By Timothy S. Donahue

Top Takeaways:

• Excise duty reversed: The Union government withdrew the 18% excise on unbranded, unmanufactured tobacco, imposed in December 2025 and formalized via a Feb. 1 published notice.
• Farmer impact drove decision: Growers and the Tobacco Board warned that the levy would raise farmgate prices and disrupt leaf markets, prompting a swift rollback.
• Cigarette taxes unchanged: Existing excise duties on manufactured cigarettes remain in place, preserving India’s tax structure based on stick length.

India’s Union government has withdrawn the 18% central excise duty on unbranded, unmanufactured tobacco and tobacco refuse sold for retail, reversing a levy imposed just weeks earlier in December 2025.

The rollback was formalized through a Gazette notification issued on Feb. 1, 2026—the same day Finance Minister Nirmala Sitharaman presented the Union Budget for 2026–27—thereby nullifying the short-lived duty before it could take effect.

The excise tax applies to raw, unbranded tobacco products, including tobacco refuse, a category closely tied to India’s farm-level supply chain rather than finished consumer products. Industry groups and farmer representatives argued that the tax would disproportionately burden growers by raising procurement costs, depressing farmgate prices, and disrupting auction and trading mechanisms overseen by the Tobacco Board.

Following the December notification, tobacco-growing states raised concerns with the Centre, warning that the levy could destabilize an already price-sensitive sector. A delegation led by the chairman of the Tobacco Board made formal representations to the government, emphasizing that unmanufactured tobacco is an agricultural commodity and that taxing it at the raw stage would burden farmers rather than downstream manufacturers.

The government’s decision to withdraw the duty reflects those concerns and signals an effort to shield growers from additional fiscal pressure amid rising input costs and ongoing volatility in global leaf markets.

The move does not alter India’s existing excise structure for cigarettes or other manufactured tobacco products. Duties on cigarettes remain unchanged and continue to be levied based on stick length and classification, consistent with the country’s long-standing tobacco taxation framework.