Want to File ITR, GST Returns & Pvt. Ltd. Registration

Notification No. 03/2025 – Compensation Cess (Rate)

by Shakshi Bharti | Dec 31, 2025 | GST, Notifications | 0 comments

Call @ +91-8512-022-044

Important Keyword: Notification 03/2025 Compensation Cess, GST cess on tobacco, compensation cess removed 2026, tobacco GST cess nil, GST compensation cess update, GST law amendment 2025,

Words: 1966 Read time: 10 minutes.

[F. No. CBIC-190349/75/2025-TRU]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)

New Delhi, the 31^st December, 2025

Notification No. 03/2025 - Compensation Cess (Rate): Seeks to amend Notification 01/2025- Compensation Cess Tax (Rate), to prescribe GST rates on tobacco products.

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUBSECTION (i)]

G.S.R….(E).-In exercise of the powers conferred by sub-section (2) of section 8 of the Goods and Services Tax (Compensation to States) Act, 2017 (15 of 2017), the Central Government, on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No. 1/2017-Compensation Cess (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 720(E), dated the 28th June, 2017, namely :-

In the said notification, in the SCHEDULE, —

against S. No. 1, for the entry in column (4), the entry “Nil” shall be substituted;
against S. No. 1A, for the entry in column (4), the entry “Nil” shall be substituted;
against S. No. 5, for the entry in column (4), the entry “Nil” shall be substituted;
against S. No. 5A, for the entry in column (4), the entry “Nil” shall be substituted;
against S. No. 6, for the entry in column (4), the entry “Nil” shall be substituted;
against S. No. 6A, for the entry in column (4), the entry “Nil” shall be substituted;
against S. No. 7, for the entry in column (4), the entry “Nil” shall be substituted;
against S. No. 7A, for the entry in column (4), the entry “Nil” shall be substituted;
against S. No.8, for the entry in column (4), the entry “Nil” shall be substituted;
against S. No. 9, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 10, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 11, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 12, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 13, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 14, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 15, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 16, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 17, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 18, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 19, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 19A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 20, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 20A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 21, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 21A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 22, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 22A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 23, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 23A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 24, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 24A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 24B, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 24C, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 25, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 26, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 26A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 27, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 27A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 28, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 28A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 29, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 29A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 30, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 30A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 31, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 31A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 32, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 32A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 33, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 33A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 34, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 34A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 35, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 35A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 36, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 36A, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 36B, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 36C, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 36D, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 36E, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 37, for the entries in column (4), the entry “Nil” shall be substituted;
against S. No. 38, for the entries in column (4), the entry “Nil” shall be substituted.

2. This notification shall come into force on the 1^st day of February, 2026.

[F. No. CBIC-190349/75/2025-TRU]
(Dheeraj Sharma) Under Secretary

Note: -The principal notification No.1/2017-Compensation Cess (Rate), dated the 28th day of June, 2017, was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 720(E), dated the 28th day of June, 2017, and was last amended vide notification No. 2/2025-Compensation Cess (Rate), dated the 17^th September, 2025, published in the Gazette of India, Extraordinary, Part II, Section 3, Subsection (i), vide number G.S.R. 659(E), dated the 17^th September, 2025.

📚 Frequently Asked Questions (FAQs): Notification No. 03/2025 - Compensation Cess (Rate)

Q1: What is Notification No. 03/2025 – Compensation Cess (Rate)?

Answer:
It is a GST notification that removes compensation cess on all tobacco and related products by substituting the cess rate as “Nil”, effective from 1 February 2026 03-2025-CompensationCess-Rate-E….

Q2: From which date is compensation cess removed?

Answer:
Compensation cess will be Nil from 1 February 2026 for all notified products.

Q3: Which law empowers the government to issue this notification?

Answer:
The notification is issued under Section 8(2) of the GST (Compensation to States) Act, 2017.

Q4: Does this mean tobacco products are tax-free now?

Answer:
❌ No. Only compensation cess is removed.
Tobacco products will still attract:
CGST + SGST / UTGST, or
IGST,
at very high GST rates (up to 40%) as per other notifications.

Q5: Why has the government removed compensation cess on tobacco?

Answer:
The compensation period for states has largely concluded, and GST rate restructuring now relies on higher GST slabs instead of cess.

Q6: Will this reduce the price of cigarettes or pan masala?

Answer:
Not necessarily. Although cess is removed, GST rates have been increased, so the overall tax burden may remain high or even increase.

Q7: Does this apply to both domestic supplies and imports?

Answer:
Yes. Compensation cess will be Nil for both domestic supplies and imports from 1 Feb 2026.

Q8: What about existing stock manufactured before 1 Feb 2026?

Answer:
Cess applicability depends on time of supply, not manufacture date. Supplies made after 1 Feb 2026 will attract Nil cess.

Q9: How should businesses reflect this in GST returns?

Answer:
Businesses must:
Stop charging compensation cess
Update billing software
Report supplies without cess in returns
👉 File error-free returns with Finodha GST Return Filing:
https://finodha.in/gst-return-filing/

Q10: Is Notification No. 1/2017 – Compensation Cess (Rate) fully withdrawn?

Answer:
No. The notification continues to exist, but cess rate for all listed products is now Nil.

Q11: What happens if compensation cess is charged after 1 Feb 2026?

Answer:
Charging cess without authority may result in:
Refund obligations
Interest liabilities
Departmental scrutiny

Q12: Does this impact GST registration requirements?

Answer:
No direct impact, but businesses should review turnover, classification, and compliance structure.
👉 Register or update details with Finodha GST Registration:
https://finodha.in/online-gst-registration/

Q13: Is this change applicable across India?

Answer:
Yes. Compensation cess is a central levy and this notification applies uniformly across India.

Q14: Real-life example for clarity?

Answer:
🧾 Example:
A cigarette manufacturer who earlier charged GST + compensation cess will now charge only GST, simplifying invoicing and reporting.

Q15: How can Finodha help businesses after this change?

Answer:
Finodha helps with:
GST & cess impact analysis
Invoice & ERP updates
Return filing & advisory
Business restructuring support
👉 Consult a Finodha GST Expert today!

✅ Conclusion:

Notification No. 03/2025 – Compensation Cess (Rate) marks the complete removal of compensation cess on tobacco products from 1 February 2026. While cess is gone, high GST rates remain, making compliance and correct classification more critical than ever.