GST to Shift to RSP-Based Valuation for Tobacco Products from February 1

New regime to delink tax calculation from transaction value; GSTN issues reporting guidance

The Goods and Services Tax Network (GSTN) has issued a detailed advisory clarifying the implementation of Retail Sale Price (RSP)-based valuation for specified tobacco and tobacco-related products, following notifications issued by the Centre on December 31, 2025. The new valuation mechanism will come into force from February 1, 2026. Under Notification Nos. 19/2025–Central Tax and 20/2025–Central Tax, GST on certain tobacco goods will no longer be computed on the actual transaction value between supplier and buyer. Instead, tax liability will be determined with reference to the RSP printed on the package, irrespective of discounts or commercial consideration. The notified goods include pan masala, unmanufactured tobacco, cigarettes, other manufactured tobacco products (excluding biris), and products intended for inhalation without combustion, covering HSN Chapters 2106, 2401, 2402, 2403 and 2404. As per the prescribed formula, the tax amount is to be derived by treating the RSP as tax-inclusive, with the deemed taxable value calculated by deducting the GST component from the RSP. GSTN illustrated that even where the actual sale value is significantly lower than the RSP, tax must still be discharged based on the RSP-derived value.

Reporting challenges and system workaround

GSTN noted that existing systems such as e-Invoice, e-Way Bill and GSTR-1/1A/IFF are designed on a transaction-value model, which may trigger validation errors when RSP-based values are reported. To address this, taxpayers have been advised to report the net sale value as the taxable value, while computing and reporting the tax amount strictly as per the RSP-based formula. The total invoice value should reflect the sum of the net sale value and the RSP-based tax. This reporting mechanism, GSTN clarified, is a trade facilitation measure applicable only to the notified tobacco goods and does not dilute statutory obligations under GST law. Taxpayers have been advised to exercise caution in classification and ensure strict compliance with the RSP-based valuation provisions. The advisory emphasised that while system fields may be self-assessed and edited to reflect correct tax liability, the responsibility for accuracy remains with the taxpayer.