Parliament Winter Session Opens Today with Health and National Security Cess Bill as Tobacco Levy Nears Expiry

Parliament begins its fifteen sitting winter session today, with the government preparing to table a new Bill aimed at creating a fresh cess structure for public health and national security.

The proposal arrives just as the GST compensation cess on tobacco products is set to expire after the Centre completes repayment of loans taken to support state revenues during the pandemic.

New Cess Planned to Maintain Current Tax Burden on Sin Goods

According to the Lok Sabha list of business, the new levy will apply to machines or processes used for manufacturing specified goods, though the detailed list has not yet been shared. Officials familiar with the matter said the objective is to keep the overall tax burden on cigarettes, gutkha, pan masala and other tobacco products unchanged once the existing GST compensation cess lapses.

The government is set to introduce the Health Security se National Security Cess Bill, which will impose a cess on pan masala initially and can later be extended to other sin goods such as cigarettes and tobacco products, excluding bidis. Officials said the Bill would also empower the Centre to add any additional item in future in the interest of public welfare. The cess will come into force on the date notified in the official gazette once Parliament clears the legislation.

Production Capacity and Self Declaration to Drive Cess Calculation

The legislation proposes levying the cess on the production capacity of specified items. Producers will be required to self declare the production capacity of each manufacturing unit for purposes of calculating the cess.

Using pan masala as an example, officials explained that a facility with machines capable of producing 500 units of 2.5 gram pouches or packets per minute would likely face a cess of about Rs 100 per month per machine. The amount increases with higher production speed or higher weight of the product packed per unit.

If a machine produces between 1,000 and 1,500 units of 2.5 gram pouches or containers per minute, the cess could be around Rs 30.3 lakh per month per machine. For products that weigh more than 2.5 grams but less than 10 grams, the estimated cess would be Rs 1,092 lakh per month per machine. If weight crosses 10 grams, the levy could rise to Rs 2,547 lakh per month per machine.

The finer details, including regulatory mechanisms and compliance protocols, will be released when the government frames rules after parliamentary approval. Officials said the monitoring system will rely heavily on digital technologies and high tech inspections.

Preparing for the End of the GST Compensation Cess

The move to introduce the new cess comes in the backdrop of the existing GST compensation cess on tobacco products nearing expiry. The levy has continued on items such as pan masala, gutkha, cigarettes, chewing tobacco, zarda and unmanufactured tobacco even after it ended for most sin and luxury goods on September 22. This continuation was designed to help the Centre service the remaining principal and interest on back to back loans taken during the Covid period to prevent state revenue losses.

The Bill was circulated to Members of Parliament on Sunday and was listed as a priority in both the Lok Sabha and Rajya Sabha Business Advisory Committee meetings.

The GST Council had decided in its fifty sixth meeting in September 2025 to phase out the compensation cess once loan obligations were cleared, with December this year projected as the likely timeline. The Council had authorised the Union finance minister, who chairs the Council, to determine the actual end date. Earlier, the compensation cess had been extended until March 31, 2026 solely for the purpose of repaying debts incurred to support states during the pandemic.

With the liability now limited largely to tobacco related items, the Council reduced the scope of compensation cess accordingly. During its fifty fourth meeting, the Council estimated that all compensation related liabilities, including repayment of back to back loans, would be settled by December 2025.

Other Bills Lined Up for Introduction

Alongside the cess legislation, the government also plans to introduce The Insurance Laws Amendment Bill 2025, which seeks to raise the foreign direct investment limit in the insurance sector to 100 percent from 74 percent. The Central Excise Amendment Bill 2025 is also scheduled for introduction in the Lok Sabha today.