Currently, cigarettes attract a compensation cess of 5 per cent ad-valorem plus a Rs 2,076-3,668 per 1,000 sticks cess, depending on the length.

Once the compensation cess ends, sale of tobacco and related products will attract a 40 per cent GST plus excise duty, while pan masala will attract 40 per cent GST plus the Health Security se National Security Cess.

"It is proposed to levy the Health Security se National Security Cess to contribute towards the twin purposes of enabling targeted utilisation for public health, as well as national security," the statement of objects and reasons of the bill said.

TMC member Saugata Ray opposed introduction of the two bills saying that tobacco is harmful but the Central Excise (Amendment) Bill does not mention that. With regard to the Health Security se National Security Cess Bill, 2025, Ray said that since cess proceeds are not shared with states he opposes the bill.

At the time of the introduction of the GST on July 1, 2017, a compensation cess mechanism was put in place for 5 years till June 30, 2022, to make up for the revenue loss suffered by states on account of GST implementation.

The levy of compensation cess was later extended by four years till March 31, 2026, and the collection is being used to repay the loan that the Centre took to compensate states for the GST revenue loss during the Covid period.

Since that loan repayment is going to be fully repaid sometime in December, the compensation cess will cease to exist.

On September 3, 2025, the GST Council had decided to continue with the compensation cess on tobacco and pan masala till the loans taken are repaid.

On other luxury items, the compensation cess ended on September 22, when the GST rate rationalisation was implemented with just 2 slabs of 5 and 18 per cent. A 40 per cent rate was fixed for ultra-luxury goods, aerated drinks and other demerit goods.

The Central Excise Amendment Bill, 2025, and The Health Security se National Security Cess Bill, 2025 will ensure that the tax incidence on sin goods like tobacco and pan masala remains the same after discontinuation of the compensation cess.