Union finance minister Nirmala Sitharaman is set to introduce a significant fiscal bill in the Lok Sabha on Monday, proposing the imposition of a new levy titled the “Health Security se National Security Cess” on pan masala and potentially other notified goods.
According to officials familiar with the development, the cess is intended to generate revenue for national security requirements and public health initiatives.
The bill is listed for introduction during Monday’s Lok Sabha proceedings, alongside The Insurance Laws (Amendment) Bill, 2025, which seeks to raise the foreign direct investment (FDI) cap in the insurance sector from the current 74% to 100%.
Cess May Extend Beyond Pan Masala to Other ‘Sin Goods’
Sources indicated that the cess would initially apply to pan masala, but the government may later expand the levy to include cigarettes and tobacco products (excluding bidis) and other harmful items deemed necessary in the public interest. The legislation also empowers the central government to notify additional items in the future.
Once passed by Parliament, the cess will come into force from the date of notification in the Official Gazette.
Levy Based on Production Capacity; Industry to Self-Declare Output
Under the proposed framework, the cess will be calculated based on production capacity rather than actual production. Manufacturers will be required to self-declare the production capacity of each manufacturing unit, measured in terms of machine output.
Illustrative cess rates (as shared by officials):
- A machine producing 500 units per minute of 2.5g pouches of pan masala may attract a levy of ₹100 per month.
- Machines with a speed of 1,000–1,500 units per minute may face a cess of ₹30.3 lakh per month per machine.
- If pouch/container weight is more than 2.5g but under 10g, the cess could rise to ₹1,092 lakh per month per machine.
- For units producing containers above 10g, the cess could soar to ₹2,547 lakh per month per machine.
The cess amount is expected to increase with both higher production speeds and higher product weight categories.
The detailed compliance framework, inspection norms, and regulatory processes will be laid out in the rules framed after the passage of the bill. The government is likely to rely on digital technology and high-tech monitoring tools to ensure accuracy and compliance.
New Cess to Replace GST Compensation Cess on Tobacco Products
The introduction of this cess is strategically linked to the conclusion of the GST compensation cess, which continued on tobacco and related products even after it ceased on most other sin and luxury goods in September 2025. This extension was meant to service repayment of back-to-back loans taken during the Covid-19 period to compensate states for revenue losses.
The GST Council had earlier estimated that the remaining liabilities under the compensation cess mechanism would be cleared by December 2025. The new cess will therefore take over the revenue function previously performed by the GST compensation cess on tobacco products.
Background: GST Compensation and Council Decisions
Under the original GST framework introduced in 2017, states were guaranteed a 14% annual growth in revenue for five years, with any shortfall compensated through a GST compensation cess on luxury and sin goods. Although this mechanism formally concluded on June 30, 2022, the cess was extended until March 2026 exclusively for loan repayment during the pandemic years.
However, in its 56th meeting (September 2025), the GST Council limited the compensation cess exclusively to tobacco and related products, and only for a short duration until the outstanding repayments were completed.
As the deadline approaches, the Centre is moving to put in place a fresh cess mechanism to ensure continuity of revenue for public health and national security needs.
Insurance Bill Also on Agenda
Alongside the cess proposal, the government will introduce the Insurance Laws (Amendment) Bill, 2025, aimed at:
- Increasing the FDI cap in insurance from 74% to 100%
- Attracting global insurers
- Enhancing competition and efficiency in the domestic insurance market
Both bills have been marked as priority items in the business discussions of the Lok Sabha and Rajya Sabha Business Advisory Committees. Copies of the Health Security se National Security Cess Bill were circulated to Members of Parliament on Sunday.
