Mumbai: A new tax system on cigarettes has come into effect from today, February 1, 2026. With this change, shares of ITC Ltd. are expected to remain in focus in the stock market. Investors are also closely watching the Union Budget 2026 for any clarification by Finance Minister Nirmala Sitharaman on the overall tax structure for tobacco products.
On January 1, the finance ministry issued a circular stating that a new 40 percent GST rate on tobacco and cigarettes will be implemented from February 1, 2026. However, there is still no complete clarity on the total tax burden, as details about additional duties and cess have not been fully explained.
What Has Changed in the Tax System?
Under the earlier tax system, cigarettes attracted 28 percent GST. In addition, companies had to pay a specific cess ranging from ₹2,076 to ₹4,170 per 1,000 sticks, an ad valorem cess of 5 percent to 36 percent, and an NCCD (National Calamity Contingency Duty) of ₹510 to ₹850 per 1,000 sticks.
In the new system, it is estimated that cigarettes will be taxed at 40 percent GST. Along with this, a new excise duty ranging from ₹2,100 to ₹8,500 per 1,000 sticks will be imposed. The NCCD of ₹510 to ₹850 per 1,000 sticks will continue.
This means the total tax burden on cigarettes is likely to increase, although the final impact will depend on how the government adjusts the combined duties and cess.
Impact on Brokerage Ratings
Due to this tax change, many brokerage firms have downgraded their ratings on ITC stock. As a result, the number of “Sell” ratings on ITC has reached its highest level in at least 15 years. Analysts are worried that higher taxes may affect cigarette prices, demand, and profit margins in the long run.
Q3 Results and Stock Performance
In the December quarter, ITC reported a 6.5 percent year-on-year growth in cigarette volumes. This was better than market expectations, which were in the range of 5 percent to 6 percent, according to a CNBC-TV18 poll.
Despite the strong operational performance, ITC shares fell nearly 20 percent in January. This was the worst start to a calendar year for the stock. Due to this sharp fall, the company’s market capitalisation dropped by more than Rs 1 lakh crore in just one month.
However, on last Friday, ITC shares ended 1.2 percent higher at ₹322.3, offering some relief to investors.
