RSP Based Valuation for Tobacco Products

RSP-Based Valuation Under GST for Tobacco Products: What Businesses Need to Know from 1 February 2026

With effect from 1 February 2026, the GST valuation framework for specified tobacco and tobacco-related products has undergone a significant shift. Vide Notification Nos. 19/2025–Central Tax and 20/2025–Central Tax dated 31 December 2025, the government has introduced Retail Sale Price (RSP)-based valuation for notified tobacco goods.

This change fundamentally alters how taxable value and GST liability are determined—moving away from transaction value and anchoring tax computation to the RSP printed on the package, irrespective of the actual sale price. The GSTN advisory clarifies both the statutory computation mechanism and the practical reporting approach across e-Invoice, e-Way Bill, and GSTR-1 systems .

This article explains the new framework, illustrates the computation, and highlights critical compliance considerations for affected taxpayers.

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Background: Shift to RSP-Based Valuation

Under the new notifications, GST valuation for certain tobacco products is no longer linked to commercial consideration between supplier and recipient. Instead, the declared Retail Sale Price (RSP) becomes the basis for valuation.

Notified Goods Covered

The RSP-based valuation applies to the following HSN classifications :

• 2106 90 20 – Pan masala

• 2401 – Unmanufactured tobacco and tobacco refuse

• 2402 – Cigars, cheroots, cigarillos, and cigarettes

• 2403 – Other manufactured tobacco products (excluding biris)

• 2404 11 00 – Tobacco products intended for inhalation without combustion

• 2404 19 00 – Nicotine substitute products for inhalation without combustion

For these goods, GST liability is determined solely with reference to RSP, even where heavy discounts or lower commercial pricing exist.

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How GST Is Computed Under RSP-Based Valuation

The advisory prescribes a tax-inclusive back-calculation method to derive the tax amount and deemed taxable value from the RSP.

Statutory Formula

For notified goods, GST is computed as follows :

• Tax Amount
  = (RSP × Applicable GST Rate) / (100 + Applicable GST Rate)

• Deemed Taxable Value
  = RSP − Tax Amount

This ensures that GST is effectively embedded in the RSP, similar to MRP-based excise valuation principles used earlier.

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Illustrative Example from the Advisory

The GSTN advisory provides a detailed numerical illustration to clarify the practical impact.

Step 1: Item and RSP Details

• RSP per pack: ₹100

• Total packs: 1,000

• Total RSP: ₹1,00,000

Step 2: GST Computation (IGST @ 40%)

• Tax amount
  = (1,00,000 × 40) / (100 + 40)
  = ₹28,571.43

• Deemed taxable value
  = 1,00,000 − 28,571.43
  = ₹71,428.57

Step 3: Actual Commercial Transaction

• Gross sale value: ₹80,000

• Less: Discount: ₹20,000

• Net sale value: ₹60,000

Despite the lower commercial value, GST remains payable on the RSP-derived tax amount.

Step 4: Invoice Value

• Net sale value: ₹60,000

• Add: GST (RSP-based): ₹28,571.43

• Total invoice value: ₹88,571.43

This disconnect between commercial value and tax base is a defining feature of the new regime .

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System Challenges: Why Special Reporting Guidance Was Needed

Existing e-Invoice, e-Way Bill, and GSTR-1 systems are designed on a transaction-value logic, with a key validation rule:

Taxable Value + Tax Amount ≤ Total Invoice Value

Under RSP-based valuation, reporting the deemed taxable value (₹71,428.57) along with tax (₹28,571.43) would exceed the invoice value based on commercial consideration—triggering system errors.

To address this, GSTN has issued specific reporting instructions as a trade facilitation measure .

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Reporting Guidance for e-Invoice, e-Way Bill, and GSTR-1

For supplies covered under RSP-based valuation, taxpayers must report values as follows:

1. Taxable Value Field

• Report the Net Sale Value (actual commercial consideration)

• Example: ₹60,000

2. Tax Amount Field

• Report GST strictly computed as per the RSP-based formula

• Example: ₹28,571.43

3. Total Invoice Value

• Report Net Sale Value + Tax Amount

• Example: ₹88,571.43

This ensures compliance with system validations while preserving the statutory tax liability .

Importantly, where GSTR-1 auto-calculates a different tax amount, taxpayers are permitted—and required—to edit the figures to reflect the correct RSP-based tax.

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Key Compliance Takeaways for Businesses

• Correct classification is critical: RSP-based valuation applies only to notified HSNs.

• Tax liability must follow the RSP formula, not the commercial value.

• System fields must be manually aligned to avoid validation errors.

• Discounts and incentives do not reduce GST liability for covered goods.

• The reporting mechanism is a facilitation measure, not a relaxation of law.

The advisory clearly places responsibility on taxpayers to self-assess, self-compute, and verify accuracy before submission .

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Conclusion

The introduction of RSP-based valuation for tobacco products marks a decisive policy shift under GST—prioritising revenue certainty over transactional pricing. While the statutory framework is clear, its interaction with existing GST systems requires careful execution.

Businesses dealing in notified tobacco goods must realign their pricing models, invoicing practices, and compliance controls ahead of 1 February 2026. Early preparation will be critical to avoid disputes, system rejections, and unintended tax exposure.

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Disclaimer

This article is for informational purposes only and is based on the GSTN advisory. Taxpayers should refer to the relevant statutory provisions, rules, and notifications for legal compliance.

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