To quantify the impact of tobacco use and the related medical expenditure on poverty in India. Tobacco expenditure and associated medical expenditure attributable to tobacco use were subtracted from the household monthly consumption expenditure in order to derive an appropriate measure of household disposable income. The 2004 National Sample Survey, a nationally representative survey of Indian households, was used to estimate the true level of poverty. Our estimates indicate that accounting for direct expenditure on tobacco would increase the rural and the urban poverty rates by 1.5% (affecting 11.8 million people) and 0.72% (affecting 2.3 million people), respectively. Similarly, the out-of-pocket costs of tobacco-attributable medical care result in 0.09% higher poverty rates in rural areas (affecting 0.7 million people) and in 0.07% higher poverty rates in urban locations (affecting 0.23 million people). Tobacco consumption impoverishes roughly 15 million people in India. Hence tobacco control measures would not only improve public health, but would also reduce poverty in India.