Why ITC Share Price Is Falling Today: How Government Tax Changes Impact the Stock

ITC share price fell sharply today, dropping around 10% in a single trading session. This sudden fall has caught the attention of many retail investors, especially because ITC is usually seen as a stable FMCG and dividend-paying stock.

The main reason behind today’s fall is a new government decision related to cigarette taxation, which directly affects ITC’s core profit engine.

What caused the fall in ITC stock today

The Indian government has announced a new excise duty on cigarettes, which will come into effect from February 1, 2026. This excise duty will be charged per 1,000 cigarette sticks and will be over and above the existing GST, which is already close to 40 percent on cigarettes.

As per the notification, the excise duty ranges from around ₹2,050 to ₹8,500 per 1,000 sticks, depending on the length of the cigarette. This significantly increases the overall tax burden on cigarette manufacturers. This is in addition to the 40% GST.

Since ITC has a large exposure to the cigarette business, the market reacted negatively to this announcement. 

Government cigarette tax hike and its impact on ITC share price

Cigarettes remain ITC’s most profitable segment. Despite diversification into FMCG, hotels, paperboards, and agri business, a large portion of ITC’s operating profit still comes from cigarettes.

Higher taxes generally lead to higher cigarette prices. Analysts expect cigarette prices to rise by ₹2 to ₹3 per stick for certain popular variants after the new duty comes into force.

Higher prices can reduce demand over time, especially in price-sensitive segments. If ITC decides not to fully pass on the tax hike to consumers, its profit margins could come under pressure. Both scenarios are seen as negative for near-term earnings, which explains the sharp reaction in the stock.

How new excise duty on cigarettes affects ITC business

With the new tax structure announced, ITC broadly has two options.

• The first is to increase cigarette prices to protect margins. This helps profitability but can hurt volumes if consumers cut back.
• The second option is to absorb part of the tax increase to support volumes. This may protect market share but can reduce profitability.
• This uncertainty around pricing strategy, volume growth, and margin impact is making investors cautious about ITC’s near-term outlook.

Why ITC cigarette business is key to its earnings

Even though ITC has diversified into FMCG, hotels, paperboards, and agri business, cigarettes continue to drive most of its profits.

Any policy change related to tobacco has a direct and immediate impact on ITC’s financial performance. This is why cigarette-related news often leads to sharp moves in ITC share price.

What investors are worried about after ITC share fall

Investors are mainly concerned about three things. A possible decline in cigarette volumes after price hikes, pressure on margins if costs are absorbed, and increased regulatory uncertainty around tobacco taxation going forward.

The tax announcement follows the passage of the Central Excise (Amendment) Bill, 2025, which allows the government to impose fresh excise duties on tobacco products. This has added to concerns that taxation on cigarettes could remain high or increase further over time.

Because of these risks, many investors chose to book profits today, leading to heavy selling in the stock.

Is ITC share price fall a buying opportunity or risk

Whether this fall turns into a buying opportunity depends on how effectively ITC manages pricing and how consumers respond to higher cigarette prices after February 2026.

From a long-term perspective, ITC’s strong cash flows, diversified businesses, and consistent dividend track record remain positives. However, in the short term, the stock could remain volatile as the market waits for more clarity.

What should ITC investors do after today’s fall

• Track management commentary on how much of the new excise duty will be passed on to consumers and how pricing changes may impact cigarette sales
• Watch upcoming quarterly results for signs of volume impact, margin movement, and any change in guidance related to the cigarette business
• Keep an eye on regulatory updates, as further changes in tobacco taxation or cess structures could affect sentiment again
• Monitor performance of ITC’s non-cigarette businesses like FMCG, hotels, and agri, as stronger growth here can reduce long-term dependence on cigarettes
• Long-term investors should focus on cash flows, dividend sustainability, and balance sheet strength rather than short-term price swings
• Avoid reacting only to daily price movement and base decisions on business fundamentals and long-term strategy

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