Key Takeaways
- New health and national security cess to be levied on pan masala production capacity
- Cess rates range from ₹100 to ₹2,547 lakh monthly per machine based on production
- Bill empowers government to extend cess to other sin goods like cigarettes
- Replaces GST compensation cess on tobacco products after loan repayments
Finance Minister Nirmala Sitharaman will introduce the Health Security se National Security Cess Bill, 2025 in Parliament’s winter session starting Monday. The legislation aims to impose a new levy on pan masala and other notified items to fund national security and public health expenditures.
What the Cess Bill Proposes
The bill allows immediate imposition of cess on pan masala production capacity, with potential extension to cigarettes and tobacco products (excluding bidis). Producers will self-declare their manufacturing capacity location-wise for cess calculation.
Once passed, the cess becomes effective from the government’s notified date. The legislation also empowers the Centre to add more items to the cess list for public welfare.
Cess Rate Structure
The proposed cess uses a slab system based on production capacity and packet weight:
- Basic rate: ₹100/month per machine for 500 units of 2.5gm pouches per minute
- Higher capacity: ₹30.3 lakh/month for 1,000-1,500 units of 2.5gm pouches
- Increased weight: ₹1,092 lakh/month for pouches over 2.5gm but under 10gm
- Maximum rate: ₹2,547 lakh/month for containers exceeding 10gm
Regulatory mechanisms will employ digital technologies for hi-tech inspections, with detailed rules to follow after parliamentary approval.
Replacing GST Compensation Cess
The new cess will replace the GST compensation cess on tobacco products, which continues until the government clears remaining principal and interest on back-to-back loans taken during COVID-19 to compensate states for revenue losses.
The 56th GST Council decided in September 2025 to phase out compensation cess once loan liabilities are discharged, expected by December 2025. While compensation cess ended on most sin goods from September 22, it continued on pan masala, gutkha, cigarettes, and tobacco products alongside 28% GST.
All tobacco products except bidis (18% GST) attract a special 40% GST rate. The new health and national security cess will apply to specified items as per the proposed bill.
The government has prioritized the bill in both Lok Sabha and Rajya Sabha business advisory committee meetings, with copies distributed to MPs on Sunday.
