A health and national safety cess has been imposed on pan masala from February 1, 2026. This is separate from the 40% GST that is normally imposed. The new cess will be calculated based on the production capacity of pan masala manufacturing companies. After adding 40% GST, the total tax burden on pan masala will remain at 88%, according to the Budget documents.
After the addition of 40% GST, the total tax burden on pan masala will remain at 88%. According to the Budget documents, the government expects to collect close to Rs 2,330 crore from the health and national safety cess in the remaining two months (February and March) of the current financial year and Rs 14,000 crore in 2026–27.
Where will the government spend the cess money imposed on pan masala?
The money that will be collected from the cess that has been imposed on the production capacity of pan masala manufacturing companies will be shared with the states for health awareness or other health-related schemes/activities. As Nirmala Sitharaman highlighted in December 2025, the objective of this health cess is to create a “dedicated and predictable resource flow” for two areas of national importance: health and national security. Parliament approved the imposition of such a cess on pan masala and the imposition of excise duty on tobacco in December.
The GST Council took the decision in September 2025
The GST Council, comprising the Finance Ministers of the Centre and states, had decided in September 2025 that when the compensation cess mechanism ends after the loan is repaid, the method of levying cess and excise duty in addition to GST on such products will be decided.
The GST Council has decided that the compensation cess will end after the loan taken to compensate the states for the loss of GST revenue during the COVID-19 pandemic is repaid. The loan of Rs 2.69 lakh crore will be repaid by January 31, 2026.
