Excise Duty: Understanding Its Role in the Indian Tax System (2025 Guide)

Excise duty forms a critical part of India’s indirect tax structure, affecting manufacturers, businesses, and consumers across the country. With the Indian GST system largely subsuming many taxes since 2017, excise duty continues to impact specific categories. This article explains excise duty in simple language, delves into its current scope, key features, common pitfalls, and why it matters to you in 2025. We will discuss recent updates, give relatable examples, and answer common queries to keep you up to date.

What is Excise Duty and Why Does It Matter in India Today?

Excise duty is a form of indirect tax charged on the manufacturing or production of goods within India. While GST has replaced most forms of indirect taxes, excise duty still applies to some key products even today. The central government collects this tax primarily on products like petroleum, tobacco, and liquor. For every litre of petrol or packet of cigarettes you buy, part of the price is excise duty.

While as a consumer you may not pay excise duty directly, it is embedded in the cost of certain goods manufactured domestically. This tax helps the government raise funds and also regulate consumption of specific items.

Did you know? After the introduction of GST, excise duty is only levied on products not covered under GST, such as petroleum products and alcoholic beverages for human consumption.

How Has Excise Duty Changed after GST Implementation?

Excise duty underwent major changes after India rolled out GST in July 2017. Several central indirect taxes merged into GST, reducing the scope of excise duty. However, central excise is still applicable to:

• Petroleum products (like petrol, diesel, and ATF)
• Tobacco and Tobacco products
• Alcoholic beverages (by state governments)

From 2025, unless GST is expanded to cover these items, excise duty will continue on this limited range. Recent proposals suggest bringing petrol and diesel under GST, but a final decision is pending. Manufacturers dealing in excluded products must stay updated on the latest excise rates and rules.

Expert insight: In 2025, the Union Budget increased excise on cigarettes by 5 percent to discourage consumption and boost government revenue.

Who Pays Excise Duty? Is It Different From GST?

Excise duty is levied on manufacturers or producers at the time of production or removal of goods from the factory. The tax burden is usually passed on to end consumers by including it in product prices.

Key differences between excise duty and GST:

• Excise duty: Applied only to specific items, collected by the central government, at the manufacturing stage.
• GST: Applied to almost all goods and services, collected by central and state governments, at the point of supply.

People also ask:
Q: Is excise duty refundable under any circumstances?
A: Yes, manufacturers may claim excise duty refunds under certain conditions like export of goods or if excess duty is paid by mistake. The procedure involves submitting a refund application with proper documentation to the relevant excise authorities.

How Does Excise Duty Work? Step-by-Step Explanation

Excise duty calculation can seem complex but can be broken into a few easy steps for manufacturers. Here’s what typically happens:

1. Manufacturer produces excisable goods covered under current excise regulations.
2. Before removal or dispatching goods from the factory, excise duty is calculated based on quantity or value.
3. Manufacturer pays the duty to the government, then moves the goods to the market.
4. This duty amount is factored into the final cost, indirectly paid by buyers.

There are mainly three types of excise duty still relevant in 2025:

• Basic Excise Duty (the main central excise)
• Special Excise Duty (on select items)
• Additional Duty of Excise (also called CVD, for imported goods equivalent to domestic excise)

First-hand experience: Many small manufacturers initially felt relieved when most excise duties were subsumed under GST in 2017. However, those in sectors like petroleum and tobacco must regularly track excise rate changes and update their invoicing and accounting systems to stay compliant.

What Are The Current Excise Duty Rates?

Excise duty rates are revised periodically in the Union Budget. For 2025, common rates include:

• Petrol: ₹19.90 per litre (Basic excise duty)
• Diesel: ₹15.80 per litre (Basic excise duty)
• Cigarettes: 5-72 percent of retail price (depending on length and type)
• Other tobacco products: 10-64 percent of value

Note: State governments may impose additional duties on alcoholic beverages.

Expert insight: The government is considering a roadmap to bring petroleum products under GST, but no timeline is confirmed. Until then, excise duty remains central to government revenue from these sectors.

What is the CENVAT Credit System in Excise Duty?

CENVAT (Central Value Added Tax) is a system allowing manufacturers to claim credit of excise duty paid on inputs or raw materials used during production. This credit can be set off against the total excise duty payable on final products.

For example, if a manufacturer pays ₹100 as excise duty on raw material and total duty liability on finished products is ₹500, CENVAT allows payment of only ₹400 in cash.

This input tax credit system reduces cascading effect (tax on tax) and ensures duty is charged only on the value addition.

People also ask:
Q: What documents are required to claim CENVAT credit?
A: Invoices from registered suppliers, excise payment challans, and records of input quantity are required to avail CENVAT credit.

Key Features or Highlights of Excise Duty in 2025

• Specific coverage: Applies only to select goods outside GST such as petroleum, tobacco, and some state-run liquor.
• Central tax: Collected by the central government, ensuring easy monitoring and administration.
• Regulatory tool: Used to shape public behaviour, for example, through higher duty on cigarettes and fuel.
• Influence on pricing: Directly impacts retail pricing of key consumer goods.

Major highlights:

• Excise duty is NOT applicable on goods and services within GST (like electronics, FMCG, and most other sectors).
• Changes in excise can influence inflation, especially due to impact on fuel prices.
• Special procedures exist for SEZs, EOUs, and businesses engaged in export.

Did you know? Excise revenue from petroleum products made up nearly 14 percent of India’s total central tax receipts in fiscal year 2024-25.

What Are the Pros and Cons of Excise Duty?

Here’s a quick overview of its advantages and drawbacks for businesses and the economy:

Pros

• Revenue generation: Reliable, substantial stream for government budgets.
• Regulatory flexibility: Can promote or discourage production of certain goods through differential rates.
• Transparency: Easier collection at manufacturing level rather than from numerous retailers.
• Traceability: Enables better tracking and auditing for tax compliance.

Cons

• Limited coverage: Applies to fewer items after GST rollout, reducing its broad utility.
• Regressive impact: Higher excise increases cost of popular consumption items like fuel.
• Complex compliance: Manufacturers must maintain detailed documentation and frequent updates.
• Cumulative effect: Raises overall prices of consumer goods impacting inflation.

First-hand experience: Several small scale manufacturers prefer the GST regime for its unified approach and simpler compliance, although those in petroleum or tobacco sectors still grapple with dual tax frameworks.

How Do Manufacturers and Consumers Experience Excise Duty?

While consumers do not pay excise duty directly, the cost is embedded in the retail price of goods like petrol or cigarettes. Manufacturers bear the responsibility of compliance, monthly returns, payments, and facing potential audits. Many use accounting software or online GST portals supplemented with excise modules to maintain their records efficiently.

Businesses trading in both GST- and excise-governed items require expertise in both systems. Training and consultation are often necessary to maintain accuracy, especially ahead of tax audits.

People also ask:
Q: How does excise duty affect petrol prices in India?
A: Central and state excise duties together account for almost 40 percent of the final petrol and diesel price, making them key drivers of fuel cost fluctuations in India.

How to Pay Excise Duty? What Are the Steps and Deadlines?

Paying excise duty involves these main steps:

1. Manufacturing or producing excisable goods as per the law.
2. Classifying goods using the Central Excise Tariff Schedule.
3. Calculating duty based on rates, quantity, or value.
4. Recording details in excise registers or online systems.
5. Paying the duty usually by the 6th of the following month (in manual payment) or 5th (through the electronic portal).
6. Filing monthly excise returns mentioning cleared quantity, tax paid, and CENVAT credits availed.

The latest excise portals accept online payments, and most returns can be filed electronically, reducing the scope for errors.

Expert insight: Many companies outsource excise processing to specialist consultants or CA firms to avoid penalties and focus on their core business.

Can Excise Duty Rates Change Frequently?

Yes, excise rates are typically revised during the Union Budget or as part of economic stimulus or regulatory measures. Sudden policy decisions may hike or cut rates on fuel or tobacco to manage the revenue deficit or public behaviour. Businesses should regularly track notifications issued by Department of Revenue, CBIC (Central Board of Indirect Taxes and Customs), or check updates on government portals.

Did you know? In 2025, India increased excise on Premium Fuel to encourage use of eco-friendly transportation alternatives, but offered partial exemptions for electric mobility projects.

FAQs: People Also Ask

Q: What is the difference between excise duty and customs duty?
A: Excise duty is charged on goods manufactured domestically within India, while customs duty applies to imports into India.

Q: Who can claim exemption from excise duty?
A: Exporters, small manufacturers under threshold limit, and certain categories like goods supplied to SEZs or for defence use may claim full or partial exemption, with proper documentation.

Q: How has introduction of GST affected excise duty?
A: GST has reduced the range of excise duty to very few products, but excise still plays a crucial role in revenue from petrol, diesel, and tobacco.

Q: What are the compliance requirements for excise duty in 2025?
A: Manufacturers must register under the Central Excise Act, maintain accurate records, pay monthly/quarterly duty, and file regular returns via online excise portals.

Pros and Cons Table of Excise vs GST

Practical Tips for Navigating Excise in 2025

• Identify whether your business deals in excisable goods by consulting the Central Excise Tariff.
• Maintain up-to-date records and use reliable accounting tools or online compliance portals.
• Monitor government notifications for rate or rule changes, especially during Budget sessions.
• Consider consulting excise specialists for sectors with frequent policy shifts like petroleum or tobacco.
• Leverage online marketplaces to compare rates of excisable products from multiple companies, ensuring competitive pricing and compliance checks.

Expert insight: Top online B2B portals now offer excise compliance monitoring tools as add-ons, streamlining monthly reporting for manufacturers in regulated sectors.

Quick Recap (TLDR)

• Excise duty is a central indirect tax on production or manufacture of select goods like petrol, diesel, tobacco, and liquor in India.
• Post GST, its scope is limited but remains essential for key government revenues and regulation.
• Paid by manufacturers, excise is now managed online via CBIC portals, with monthly filings required.
• Compliance involves classifying goods, calculating duty, paying on time, and tracking frequent policy changes.
• Pros include reliable revenue and easier control, while cons involve limited scope and high compliance for some sectors.
• For latest updates, use government notifications, online tax platforms, and consult professionals if necessary.

People Also Ask (Additional FAQs)

Q: Will excise duty be completely abolished in future?
A: Unless GST covers remaining excluded products, excise duty will continue. Any complete abolition depends on GST Council decisions and future Budget policies.

Q: How can a consumer verify excise paid on a product?
A: Look for declaration on packaging or the invoice issued by the manufacturer. For petrol pumps, excise share is usually displayed in price breakup charts.

Q: How do petrol or diesel price changes relate to excise?
A: Government often adjusts excise rates to manage retail prices in response to global oil price fluctuations.

Q: Are there any penalties for excise duty evasion?
A: Yes, penalties include fines and possible criminal prosecution under the Central Excise Act.

References & Sources

1. Central Board of Indirect Taxes and Customs (CBIC)
2. Union Budget 2025 Announcements
3. Goods and Services Tax (GST) Portal
4. Latest Excise Circulars and Notifications
5. Department of Revenue, Ministry of Finance