Explained: What's the Central Excise Bill, 2025 moved by govt in Lok Sabha?

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The Lok Sabha has taken up the Central Excise (Amendment) Bill, 2025 for discussion on Wednesday, after repeated adjournments earlier in the week. The Bill proposes major changes to the excise duty structure on 'sin goods' such as tobacco products once the GST compensation cess ends.

 

What the Bill seeks to change

 

Finance Minister Nirmala Sitharaman moved the Central Excise (Amendment) Bill, 2025, in the Lok Sabha for consideration and passing.

 

The proposed law aims to amend the Central Excise Act, 1944, specifically to raise excise duties and cess on tobacco products such as cigarettes, cigars, hookah tobacco, chewing tobacco, zarda and scented tobacco.

 

The Bill has been brought because the GST compensation cess, currently applicable on all tobacco products, will be discontinued once the central government's loan liabilities and interest payments under the cess regime are fully cleared.

 

According to the Bill’s statement of objects and reasons, the amendment is required “to give the government the fiscal space to increase the rate of central excise duty on tobacco and tobacco products so as to protect tax incidence", after the cess ends. 

 

Why the amendment is needed now

 

When GST was introduced in 2017, the Centre had reduced central excise duties on tobacco products so that the new compensation cess could be levied without significantly increasing the total tax burden.

 

With the cess expected to be withdrawn soon, the government wants to reset excise duties to ensure tobacco products do not face a revenue gap or fall in tax incidence. This requires amending the table in Section IV of the Fourth Schedule of the Central Excise Act.

 

The Bill was tabled earlier amid the Opposition's protest demanding a discussion on the Special Intensive Revision (SIR) of electoral rolls.   

GST rate on sin goods

 

In September, the Goods and Services Tax (GST) Council approved a major overhaul of the tax structure. As part of this reform, the Council removed the 12 per cent and 28 per cent GST slabs and shifted to a simpler two-rate system.

 

A key part of the revamp was the introduction of a special 40 per cent GST rate on items known as 'sin goods'. These include products considered harmful to health or society -- such as tobacco, gutka, pan masala, aerated drinks and high-end luxury vehicles.

 

Sin goods are usually taxed at higher rates around the world. Governments do this to discourage their use and to raise funds for public health and welfare programmes.

 

Earlier, these products attracted 28 per cent GST plus a compensation cess. Under the new system, the cess has been absorbed into a single 40 per cent GST slab.   (With agency inputs)