The government on Wednesday formally annulled the vestige of compensation cess on sin goods such as cigarettes and tobacco products from the Goods and Services Tax regime as decided by the 56th GST Council on September 3.

“This notification shall come into force on the 1st day of February, 2026,” the order published late on Wednesday in the Gazette of India said. The vestige of the compensation cess continued to apply to tobacco and tobacco-related items under GST 2.0, despite the tax rate rationalisation effective from September 22.

Simultaneously, the government issued separate notifications to designate February 1 as the date on which the provisions of the Health Security se National Security Cess Act and the Central Excise (Amendment) Act, 2025, will come into effect.

The first law levies cess on the basis of self-declared production capacity of pan masala, while the second raises levies on tobacco and its goods like cigarettes, cigars, cheroots, hookah, and chewing tobacco so that taxes on them do not fall after the GST compensation cess gets withdrawn.

The 56th GST Council had 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 was discharged.

While the levy of compensation cess ended on almost all sin goods and luxury items after the rate rationalisation, it continued along with a 28% GST on pan masala, gutkha, cigarettes, and chewing tobacco products such as zarda till the compensation cess account was completely discharged.