Published Feb 04, 2026 | 12:42 PM ⚊ Updated Feb 04, 2026 | 12:50 PM
Representational image. Credit: iStock
Synopsis: The Union government exempted unbranded, non-retail unmanufactured tobacco from excise duty effective 1 February 2026, revising the earlier uniform 18% levy. Andhra Pradesh CM Chandrababu Naidu welcomed the move, saying it benefits farmers, small traders, and rural households. The exemption shields bulk raw tobacco sales, while branded and retail-packed tobacco continues to attract 18% duty, ensuring clarity and revenue balance.
In a significant development, the Union government exempted unbranded and non-retail-packaged unmanufactured tobacco from central excise duty.
The levy has been brought down to zero percent, effective 1 February 2026. The decision marks a clear break from the earlier blanket taxation regime. The move was notified through a gazette issued by the Ministry of Finance.
Andhra Pradesh Chief Minister N Chandrababu Naidu welcomed it as a timely and decisive intervention. He said it would directly benefit tobacco farmers, small traders, and the rural economy of the state.
The Ministry of Finance issued the amendment on 1 February 2026. It revised Notification No. 03/2025–Central Excise, which was originally notified on 31 December 2025. The change redraws the tax map for unmanufactured tobacco.
Under the revised framework, unmanufactured tobacco or tobacco refuse that does not carry a brand name and is not packed for retail sale will now attract nil excise duty.
This category largely includes tobacco sold by farmers in sacks or loose form. There is no processing involved, no branding and no retail packing. It is tobacco in its rawest state, straight from the field to the trader.
However, the Union government has also drawn a firm line. All other forms of unmanufactured tobacco continue to face an 18 percent excise duty. This includes branded tobacco, tobacco packed in small retail units, and tobacco prepared for commercial or consumer sale.
The amendment effectively splits the earlier uniform 18 percent levy. It offers targeted relief to the primary agricultural trade. At the same time, it safeguards revenue from processed and consumer-oriented products.
Naidu described the decision as a “key step forward.” He said it brings much-needed clarity, uniformity, and transparency to tobacco taxation. “This gazette will reduce the difficulties caused by different classifications in the levy of excise duty,” he said.
He pointed out that earlier ambiguities had blurred the line between bulk farmer sales and commercial trade. The lack of clear distinction became a breeding ground for disputes. It led to operational bottlenecks. It also caused avoidable financial losses to farmers and traders. An official release from the state government said on Tuesday, 3 February.
In late 2025, the imposition of an 18 percent duty on all unmanufactured tobacco had set alarm bells ringing. Farmers and traders in Andhra Pradesh were left grappling with interpretation issues. Audits, billing, and transactions became minefields. Many faced unwarranted tax demands and frequent confrontations with officials.
The state is a major producer of flue-cured Virginia (FCV) tobacco and other varieties. Farmer bodies and trader delegations repeatedly urged the chief minister to take up the matter with the Union government.
The new exemption directly tackles these pain points. It clearly shields genuine raw, unbranded tobacco transactions from excise duty. Farmers selling tobacco in bulk sacks now stand protected.
“Raw tobacco sold by farmers in bulk without branding or retail packaging will attract zero excise duty,” Naidu pointed out. He said the move would ensure better price realisation for growers. It would also smoothen the supply chain and support small traders and exporters.
The tobacco sector in Andhra Pradesh supports lakhs of rural households. Cultivation is concentrated in districts such as Prakasam, Guntur, Krishna and West Godavari.
In many cases, farmers sell their produce unprocessed at auction platforms or directly to traders. For them, the zero-duty provision comes as a shot in the arm.
The state government urged the Union government and the Central Board of Indirect Taxes and Customs (CBIC) to ensure uniform enforcement across the country.
“This decision is beneficial for all tobacco farmers,” Naidu said, reiterating that the policy shift would boost farm income, improve trade efficiency, and strengthen India’s export competitiveness in the tobacco sector.
(Edited by Amit Vasudev)
