The decision to keep 'khaini' free from tax was taken at a state cabinet meeting presided over by Chief Minister Nitish Kumar.
Recently, a delegation of tobacco growers met Kumar with a demand to keep them away from tax payment, sources said.
Bihar is a major cultivator of tobacco and the state has a institute for promoting cultivation of tobacco.
The state cabinet also gave green signal to draft Bihar Fire Service Bill, 2013 that intends to replace the Bihar Fire Service Act, 1948.