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New cess bill on sin goods likely as Parliament's winter session begins today
According to the proposed health and national security cess legislation, the levy is expected on the production capacity of specified items
Union finance minister Nirmala Sitharaman is scheduled to introduce a bill in the Lok Sabha on Monday to levy “Health Security se National Security Cess” on pan masala and any other items notified by the central government to meet expenditure on national security and for public health, people in the know said on Sunday.
The bill may immediately impose a cess on pan masala and could later extend it to other sin goods such as cigarettes and tobacco products (excluding bidis), they said. It is also expected to empower the central government to add any item to the list in the future in the interest of public welfare. Once the bill becomes an act, the proposed cess will come into effect on the date the government notifies it in the official gazette, the people added.
Apart from the cess bill, the government also intends to introduce The Insurance Laws (Amendment) Bill, 2025 to raise the foreign direct investment (FDI) limit in the insurance sector to 100% from 74%. The Health Security se National Security Cess Bill, 2025 is on the schedule of the Lok Sabha’s list of business for Monday along with The Central Excise (Amendment) Bill, 2025.
According to the proposed health and national security cess legislation, the levy is expected on the production capacity of specified items. Individual producers or firms will self-declare location-wise production capacity of their units for the purpose of the cess, they said.
Citing the example of pan masala, they said a cess of about ₹100 per month per machine is expected to be levied if a facility has a production capacity of 500 units of 2.5gm pouches or packets per minute per machine. The cess rates may increase with the increase in production speed as well as the weight of specified goods (pan masala in this case) in each pouch, or packet, or tin, or container, they added.
For example, if a machine has the capacity to produce more than 1,000 to 1,500 units of 2.5gm pouches, or containers, the cess amount would be ₹30.3 lakh per month per machine, they said. If these pouches weigh more than 2.5gm but less than 10gm, the cess is expected at ₹1,092 lakh per month per machine. And, if the weight of the containers exceeds 10gm, the levy would jump to ₹2,547 lakh per month per machine, they added.
Procedural details, regulatory mechanisms and other nitty-gritty would be detailed when the government will frame rules after the bill is passed in Parliament, they said. Regulatory mechanisms and inspections will be hi-tech with a wide use of digital technologies, they said.
The introduction of the cess bill is expected to replace the Goods and Services Tax (GST) compensation cess on tobacco products that will cease to exist after the government services the remaining principal and interests of back-to-back loans taken during the Covid period to compensate states for their revenue losses. The bill was distributed among the MPs on Sunday. In both the Lok Sabha and the Rajya Sabha Business Advisory Committee meetings, the government pitched the bill as a priority.
The 56th GST Council in September 2025 decided to remove compensation cess in a phased manner until the remaining liability of the back-to-back loans taken to fund state revenue losses during the pandemic period is discharged. This was expected by December this year, the people mentioned above said. The GST Council had empowered the Union finance minister, who is also the chairperson of the Council, to decide the actual date on this matter.
While the levy of compensation cess ended on almost all sin goods and luxury items from September 22, it continued along with 28% GST on pan masala, gutkha, cigarettes, chewing tobacco products like zarda, and unmanufactured tobacco till loan repayment and interest payment obligations under the compensation cess account were completely discharged. All tobacco products, except bidi (18%) attract a special 40% GST rate. Specified items, as per the proposed bill, will, however, attract health and national security cess, they said.
At the time of launching the GST regime, the law assured states a 14% increase in their annual revenue for five years of the transition period from July 1, 2017 up to June 30, 2022, and also guaranteed that their revenue shortfall, if any, would be made good through a compensation cess levied on luxury goods and sin products such as liquor, cigarettes, other tobacco products, aerated water, automobiles, and coal.
The GST compensation cess was, however, extended from June 30, 2022 till March 31, 2026, only to retire debts taken on behalf of states to meet the revenue shortfall during the Covid period. While states have no claims for compensation from July 1, 2022, it was earlier decided that the cess will continue till March 31, 2026 to service the back-to-back loans released to states when compensation cess collection fell in 2020 and 2021 because of a slump in economic activity due to the pandemic.
The 56th GST Council, however, limited the scope of the compensation cess to only tobacco and tobacco-related items, that too for a limited period, until all loan obligations are discharged. The GST Council in its 54th meeting had estimated that the entire liability related to compensation cess (along with retiring the back-to-back loans) would be met by December 2025.
