Shares of ITC Limited fell sharply after the Indian government announced a big increase in excise duty on cigarettes, raising worries among investors about the company’s future earnings. This was ITC’s biggest one-day fall in nearly six years.

According to a government notification issued late on December 31, 2025, the excise duty on cigarettes will increase from February 1, 2026. The new duty rates will range between ₹2,050 and ₹8,500 per 1,000 cigarette sticks, depending on the category. Market experts were surprised by the size of the increase.

Analysts from Jefferies Financial Group said that if another tax called the National Calamity Contingent Duty (NCCD) remains unchanged, the total tax increase on cigarettes could be more than 30%. This is much higher than what the market was expecting.

As a result, ITC shares dropped 10% on January 1, marking their worst fall since 2020. Another cigarette company, Godfrey Phillips India, saw an even steeper decline, with its stock falling 17% during the same trading session. Trading activity in both stocks rose sharply, showing panic selling by investors.

ITC sells popular cigarette brands such as Gold Flake and Classic, while Godfrey Phillips markets Marlboro and Four Square in India. Cigarettes are extremely important for ITC’s business, contributing over 40% of its total revenue. Because of this heavy dependence, any fall in cigarette sales could seriously affect the company’s profits.

Experts believe ITC may have to increase cigarette prices by at least 15% to manage the impact of higher taxes. However, higher prices could reduce demand and also push some consumers towards illegal or smuggled cigarettes, which is a major concern for the industry.

The new excise duty comes on top of the existing 40% Goods and Services Tax (GST) already imposed on tobacco products. The government said the tax hike is aimed at making up for revenue losses caused by earlier tax cuts announced in September.

India has more than 253 million tobacco users, making it the second-largest tobacco-consuming country in the world. According to government estimates, illnesses caused by tobacco use cost the country over ₹2.4 trillion every year.

The government has also stepped up efforts to reduce tobacco consumption. These include higher taxes on cigarette manufacturing equipment and proposed limits on advertising, such as banning tobacco promotions during IPL matches. Officials believe that keeping tobacco products expensive is one of the most effective ways to reduce smoking and have said the move will not increase illegal trade.