News Context: This Act, effective February 1, 2026, represents the most significant overhaul of tobacco taxation since the GST rollout in 2017.
The Fiscal Transition: From Cess to Excise
- End of the GST Compensation Cess: The 2017 Cess was designed to last 5 years to help states; it was extended to repay COVID-19 loans. As those debts are settled by 2026, the Cess is being withdrawn.
- The "Specific Duty" Model: To prevent tobacco from becoming cheaper (and thus more accessible), the government is reintroducing high Specific Excise Duties based on the length of the cigarette (measured in mm).
Tax Incidence Table (New Regime):
Public Health & Federalism Implications
- Health Security-cum-National Security Act, 2025: A companion Act that introduces a new cess on Pan Masala to fund healthcare for tobacco-related illnesses.
- Federal Share: Unlike the old Cess (which stayed with the Centre), Excise Duty is shareable with States under the Finance Commission pool, improving State revenues.
IAS-2026 - OPTIONAL / GEOGRAPHY / PUBLIC ADMINISTRATION / SOCIOLOGY / ANTHROPOLOGY / ORIENTATION ON 03 & 04-10-2025 
