The government has capped the maximum rate of GST compensation cess that would be levied on pan masala, cigarettes and other forms of tobacco and linked the highest rate to their retail sale price.

The capping of the cess rate was brought in as part of the amendments to the Finance Bill, 2023, which was passed by the Lok Sabha last Friday.

As per the amendment, the maximum GST compensation cess rate for pan masala will be 51 per cent of the retail sale price per unit. In the current regime, the cess is charged at 135 per cent ad valorem.

The rate for tobacco has been fixed at Rs 4,170 per thousand sticks plus 290 per cent ad valorem or 100 per cent of the retail sale price per unit.

So far, the highest rate was Rs 4,170 per thousand sticks plus 290 per cent ad valorem.

The cess is levied over and above the highest GST rate of 28 per cent.

Changes in schedule-I of the GST compensation cess Act, brought in via amendment in the Finance Bill, have capped the maximum cess that can be charged on Pan masala and tobacco products.