The Goods and Service Tax Network (GSTN) has notified Retail Sale Price (RSP)-based valuation for specified tobacco and tobacco-related products under the Goods and Services Tax (GST) regime. The new valuation mechanism will come into force from February 1, 2026.
What Changes Under the New Rule?
Under the revised framework, GST on notified tobacco products will no longer be calculated on the actual transaction value (the price at which goods are sold between supplier and buyer). Instead, tax liability will be determined on the Retail Sale Price (RSP) printed on the product packaging, regardless of discounts, incentives, or commercial arrangements.
This shift mirrors valuation practices already followed under other indirect tax laws for sin goods and is expected to reduce under-reporting of taxable value in the tobacco supply chain.
Products Covered
The RSP-based valuation applies to a wide range of tobacco and nicotine products, including Pan masala (HSN 2106 90 20), Unmanufactured tobacco and tobacco refuse (HSN 2401), Cigarettes, cigars, cheroots and cigarillos (HSN 2402), Manufactured tobacco and substitutes, excluding biris (HSN 2403), and Non-combustible inhalation products containing tobacco or nicotine substitutes (HSN 2404).
How Tax Will Be Calculated?
For notified goods, the GST payable will be derived from the RSP using a statutory formula:
- Tax Amount = (RSP × Applicable GST Rate) / (100 + Applicable GST Rate)
- Deemed Taxable Value = RSP − Tax Amount
This means that the RSP is treated as a tax-inclusive price, and the taxable value is mathematically extracted from it.
An illustration provided in the advisory shows that even when the actual net sale value is significantly lower due to discounts, the GST payable remains linked to the RSP, potentially increasing the effective tax burden on manufacturers and distributors.
Reporting Relief for E-Invoicing and Returns
Acknowledging practical challenges, GST Network (GSTN) has issued specific reporting guidance for taxpayers using e-Invoice, e-Way Bill, and GSTR-1/1A/IFF systems, which are currently designed around transaction-value logic.
To avoid system validation errors net Sale Value (commercial consideration) should be reported as the taxable value in system fields. GST amount must be calculated strictly as per the RSP-based formula. Total invoice value should equal the net sale value plus the RSP-based tax amount.
This relaxation is described as a trade facilitation measure and does not dilute the statutory requirement to pay tax based on RSP.
Advisory to Taxpayers
GSTN has advised stakeholders to carefully classify products to determine whether RSP-based valuation applies. Ensure accurate computation and self-assessment of tax liability. Rely on statutory provisions and notifications for legal compliance, as the advisory itself is for informational purposes only
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