Excise Duty: (2025 Guide)

Excise duty is a very important component of the indirect tax structure of India that impacts manufacturers, businesses and consumers in India. Since the introduction of the Indian GST system in 2017, the excise duty has remained a factor that affects certain categories of taxes. This article defines excise duty in layman terms, goes into the scope of excise duty, its main characteristics, trappings, and why it is important to you in the year 2025. We are going to talk about new changes, provide examples that you can identify with, and address frequently asked questions to make you informed.

What is Excise Duty and Why is it so Important in India Nowadays?

Excise duty is an indirect tax levied on manufacturing or production of goods in India. Although most types of indirect taxations have been substituted by GST, there are still some important products on which excise duty is imposed till today. Central government levies this tax mainly on commodities such as petroleum, tobacco and liquor. Whenever you spend a litre of petrol or a packet of cigarettes, some of the money you pay is the excise duty.

Although as a consumer you might not be required to pay excise duty directly, it is a factor that is incorporated into the prices of some goods that are produced in the country. This tax assists the government to collect revenue and it is also used to control the consumption of certain products.

Did ye not know? Since the implementation of GST, excise duty is imposed only on those products that are not under GST e.g. petroleum products and alcoholic drinks to be consumed by human beings.

What has been the Impact of Excise Duty on the implementation of GST?

The excise duty has changed significantly when India implemented GST in July 2017. A number of central indirect taxes were combined into GST and this decreased the domain of the excise duty. Nevertheless, central excise continues to be applicable to:

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

Excise duty will remain on this narrow scope after 2025 unless GST is extended to include them. The recent proposals include the inclusion of petrol and diesel into GST but this is yet to be decided. Producers of excluded items have to keep in touch with the latest excise rates and regulations.

Insider perspective: In 2025, the Union Budget raised excise duty on cigarettes by five percent to deter the use of the product and generate more revenue to the government.

Who is the Payer of the Excise Duty? Is it Different to GST?

Excise duty is charged to manufacturers or producers, at the point of production or withdrawal of products out of the factory. The taxes are normally transferred to the final consumers by adding the taxes to the products.

The distinction that exists between the GST and the excise duty:

Another question that people put forward is:
Q: Does excise duty have a refund policy?
A: Yes, manufacturers can claim excise duty refund, provided they have a condition such as export of goods or excess duty is paid by mistake. This is done by making a refund application by providing the relevant excise authorities with proper documents.

Explain the Mechanism of Excise Duty with a tep-by-Step Explanation?

Computation of excise duty may appear complicated yet it can be simplified down into some simple steps by manufacturers. The following is what usually happens:

• Producer deals with excisable commodities as per the existing excise laws.
• Excise duty is levied as a percentage of quantity or value before the goods are removed or despatched out of the factory.
• Manufacturer will pay the duty to the government and then he will transfer the goods to the market.
• Such duty cost is included in final price, which buyers indirectly pay.

Excise duty has mainly three types that are still applicable in the year 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)

Personal observation: In 2017, most of the excise duties were absorbed into GST and at the time, many small manufacturers felt relieved. But in other industries such as petroleum, tobacco, etc. they have to keep an eye on excise rate changes and update their invoicing and accounting system frequently to remain in compliance.

What are the current rates of excise duty?

The excise duty rates are also periodically adjusted in the Union Budget. In 2025, one can find:

• 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 the value

Note: State governments are allowed to add extra responsibilities on alcoholic beverages.

Professional opinion: There is a possibility of a roadmap by the government to take petroleum products under GST, but no date is fixed. In the meantime, excise duty continues to be the focus of the government revenues on these industries.

What is the CENVAT Credit System of the 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 may be offset with the aggregate excise duty to be paid on finished products.

Let us suppose that a manufacturer pays 100 as excise duty on raw material and the total liability of duty on finished goods is 500 CENVAT will enable the manufacturer to pay 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.

Another question that people put forward is:
Q: What are the documents to be used to claim CENVAT credit?
A: CENVAT credit can be availed by providing invoices of registered suppliers, excise payment challans and records of quantity of input.

Important aspects or notes of the Excise Duty in 2025

• Specific coverage: Used in only a few goods that are not part of GST like petroleum product, tobacco and certain liquor that is run by states.
• Central tax: It is paid to the central government and this makes it easy to monitor and administer.
• Regulatory tool: This is applied to influence the behaviour of the people such as increased duty on cigarettes and fuel.
• Impact on the prices: It directly affects the retail prices of the consumer goods.

Major highlights:

• Excise duty is NOT applicable on goods and services within GST (like electronics, FMCG, and most other sectors).
• Excise changes have the potential to affect inflation because of their effect on fuel prices.
• There are special procedures of SEZs, EOUs and business involved in export.

Did ye not know? Of the total central tax revenues in India in the fiscal year 2024-25, petroleum products excise revenue constituted close to 14 percent.

What are the merits and demerits of excise duty?

Merits

• Revenue: Stable, large income source to the governments.
• Flexibility in regulation: Can encourage or deter the production of some commodities by use of differentials.
• Transparency: It is easier to collect at the manufacturing level as opposed to many retailers.
• Traceability: Enables more tracking and auditing to be compliant with tax.

Demerits

• Narrow scope: It will cover less than before the GST was introduced, and therefore it will be less useful in general.
• Regressive effect: An excise rise leads to the rise in the cost of consumption items that are commonly used such as fuel.
• Complicated compliance: The manufacturers have to keep a lot of detailed documentation and update regularly.
• Cumulative impact: Increases the price of the general consumer goods that determine the inflation.

First-hand experience: A number of small scale manufacturers like the GST regime because it is single and easier to comply but those in the petroleum or tobacco industry continue to struggle with dual tax models.

What is the Experience of Manufacturers and Consumers of Excise Duty?

Although the excise duty is not paid by the consumer, it is reflected on the retail price of products such as petrol or cigarettes. It is the duty of the manufacturers to comply, make monthly returns, and payments and even face possible audits. Most of them maintain their records with the help of accounting software or online GST portals with excise modules attached to it.

The companies dealing with GST and excise-regulated goods have to be professionals in both systems. To be accurate, training and consultation may be needed, particularly before tax audits.

Another question that people put forward is:
Q: What is the impact of excise duty on the prices of petrol in India?
A: The total excise duty of central and state governments comprise nearly 40 percent of the final price of petrol and diesel and thus these two are the primary factors of fluctuation in fuel prices in India.

What is the Method of Paying Excise Duty? How Do I Do It and What Are the Deadlines?

When paying excise duty, the following are the major steps:

• Production or making of excisable goods according to the law.
• The classification of goods by use of Central Excise Tariff Schedule.
• The calculation of duty at a rate, quantity or value.
• Capturing the information on excise registers or web-based systems.
• Paying the duty usually by the 6th of the following month (in manual payment) or 5th (through the electronic portal).
• Monthly excise returns are to be filed giving details of cleared quantity, tax paid and CENVAT credits availed.

The new excise portals allow online payment and majority of the returns can be submitted electronically and this minimizes chances of mistakes.

Professional opinion: To prevent penalties and concentrate on the core business, many companies entrust the processing of excise to specialized consultants or CA firms.

Is it Possible to Alter Excise Duty Rates Frequently?

Yes, excise rates are normally updated in the Union Budget or even in economic stimulus or regulatory reforms. The policy changes might increase or decrease rates on fuel or tobacco to control the revenue deficit or the behaviour of the people. 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 ye not know? In 2025, India raised excise on Premium Fuel to promote the usage of environmentally friendly forms of transport, yet provided partial exemptions to electric mobility projects.

FAQs: Questions that People Ask

Q: What is the distinction between the excise duty and customs duty?
A: Excise duty is levied on goods produced in the country which is India and customs duty is levied on goods imported into India.

Q: Who is entitled to exemption of excise duty?
A: The exporters, small manufacturers under threshold limit and some special categories such as goods supplied to SEZs or goods supplied to defence purpose may claim full or partial exemption subject to proper documentation.

Q: What has been the impact of introduction of GST on excise duty?
A: GST has limited the scope of excise duty to very limited products, yet excise remains very important in revenue collection in petrol, diesel and tobacco.

Q: How should excise duty be complied with in 2025?
A: The manufacturers are required to make themselves registered under the Central Excise Act, keep proper records, pay duty on monthly/quarterly basis and make regular returns through online excise portals.

Comparison of Excise vs GST Table

Real-World Advice on How to Deal with Excise in 2025

• Check your business by going through the Central Excise Tariff to determine whether you are dealing in excisable goods or not.
• Maintain documentation and utilize popular accounting software or compliance portal on the Internet.
• Be careful of government announcements of any changes to rates or rules particularly around Budget sessions.
• One may want to consider consulting excise experts in areas that experience a high turnover of policies such as petroleum or tobacco.
• Use online market places to check the rates of excisable products of various companies to ensure that the rates are competitive and checks have been done.

Industry knowledge: The best online B2B portals have recently introduced excise compliance monitoring services as an option, making it much easier to report on a monthly basis to manufacturers in the regulated industries.

Quick Recap (TLDR)

• Excise duty is a main indirect tax on production or manufacture of some specific goods in India such as petrol, diesel, tobacco, and liquor.
• After GST, it has a limited scope though it is still critical to major government revenues and regulation.
• Excise is paid by manufacturers, and it is now being managed online through CBIC portals, and it has to be filed on a monthly basis.
• Compliance entails the classification of goods, duty calculation, and timely payment as well as monitoring of policy changes that are frequent.
• Advantages are stable revenue and the simplification of control whereas disadvantages include limited scope and high compliance in some sectors.
• To keep up to date, rely on government announcements, internet-based tax services, and seek professional help when needed.

People Also Ask (Additional FAQs)

Q: Is there a chance of full abolition of excise duty in future?
A: As long as there are still products that are excluded, excise duty will still persist unless GST is charged on them. Any full abolition hinges on the decisions of the GST Council and Budget policies in the future.

Q: How does a consumer know that excise has been paid on a product?
A: On the packaging or the invoice that the manufacturer provides. In case of petrol pumps, the excise share is normally shown in price break up charts.

Q: What is the connection between changes in the price of petrol or diesel and excise?
A: Due to the fluctuation in the global oil prices, government regularly changes the excise rates to control the retail prices.

Q: What is the punishment in case of evasion of excise duty?
A: Yes, fines and even criminal prosecution under the Central Excise Act are the penalties.

Sources:

• Central Board of Indirect Taxes and Customs (CBIC)
• Announcements of the Union Budget 2025
• Goods and Services Tax (GST) Portal
• Recent Excise Circulars and Notices
• Ministry of Finance Department of Revenue