Introduction of RSP-Based Valuation for Notified Tobacco Products (Effective from 01.02.2026)
Introduction – General Principle of GST Valuation
Under the GST Act, tax is levied on the transaction value, i.e., the Consideration[1] agreed between the supplier and the recipient for the supply of goods or service Accordingly, GST is computed on the actual price charged in the invoice.
However, Section 15(5) of the CGST Act empowers the Government to notify specific supplies for which the value shall be determined in the manner prescribed, notwithstanding Section 15(1).
Earlier Notifications Issued under Section 15(5)
In exercise of the powers under Section 15(5), the Government had earlier issued Notification No. 49/2023 – Central Tax dated 29.09.2023, prescribing special valuation mechanisms for the following supplies:
- Supply of online money gaming
- Supply of money gaming other than covered under (a)
- Supply of actionable claims in casinos
Introduction of RSP-Based Valuation for Tobacco Products
Subsequently, vide Notification No. 19/2025 – Central Tax and Notification No. 20/2025 – Central Tax, both dated 31.12.2025, the Government has prescribed Retail Sale Price (RSP)-based valuation for specified tobacco and tobacco-related products, with effect from 01.02.2026.
Under this mechanism, GST shall be computed with reference to the declared RSP printed on the package, irrespective of the actual transaction value between the supplier and recipient.
The said notifications cover the following HSN codes and descriptions:
| S.
No. |
Chapter / Heading / Sub- heading |
Description of Goods |
| 1 | 2106 90 20 | Pan masala |
| 2 | 2401 | Unmanufactured tobacco; tobacco refuse (other than tobacco leaves) |
| 3 | 2402 | Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes |
|
4 |
2403 |
Other manufactured tobacco and manufactured tobacco substitutes; “homogenised” or “reconstituted” tobacco; tobacco extracts and essences (other than biris) |
| 5 | 2404 11 00 | Products containing tobacco or reconstituted tobacco intended for inhalation without combustion |
| 6 | 2404 19 00 | Products containing tobacco or nicotine substitutes intended for inhalation without combustion |
Computation of Tax under RSP-Based Valuation
For the notified goods, the RSP is deemed to be tax-inclusive, and the taxable value and tax amount must be derived using the prescribed formula:
Tax Amount: (RSP × GST Rate in % of applicable taxes) / (100 + Sum of applicable tax rate)
Deemed Taxable Value: RSP − Tax Amount
Illustrative Example – RSP-Based Valuation
Assumptions (RSP-based notified goods):
| Field | Value |
| Relevant HSN (RSP-based notified goods) | 2402 |
| MRP / RSP per pack (₹) | 100 |
| Total packs | 1,000 |
| Total RSP (₹) | 1,00,000 |
Statutory computation as per RSP formula (Assume IGST @ 40%)
Under RSP-based valuation, the deemed taxable value and tax amount are required to be derived from the RSP (tax-inclusive).
| Particulars | Computation | Amount (₹) |
| Total RSP (aggregate) | 100 × 1,000 | 1,00,000.00 |
| Tax amount (IGST @ 40%) | (1,00,000 × 40) / (100 + 40) | 28,571.43 |
| Deemed taxable value (as per RSP formula) | Total RSP − Tax amount | 71,428.57 |
Commercial transaction values (actual consideration)
| Particulars | Amount (₹) |
| Gross sale value | 80,000.00 |
| Less: Discount | 20,000.00 |
| Net sale value (commercial consideration) | 60,000.00 |
System Validation Issue in GST Portal
Currently, the e-Invoice, e-Way Bill, and GSTR-1/1A/IFF systems are designed with the following validation rule:
Taxable Value + Tax Amount ≤ Total Invoice Value
Where this condition is violated, the system displays an error stating:
“The sum of taxable value and tax amount cannot be greater than the total invoice value.”
In the above example:
- Deemed taxable value as per RSP: ₹71,428.57
- Tax amount: ₹28,571.43
- Actual consideration (net sale value): ₹60,000.00
If the deemed taxable value is reported, the sum of taxable value and tax would exceed the commercial invoice value, resulting in system validation errors.
Reporting Guidance Issued by GSTN Advisory dated Jan 23rd, 2026
To address this issue, GSTN has clarified that for RSP-based valuation supplies, taxpayers shall report invoice details as under:
- Taxable Value – Report the actual sale consideration (₹60,000)
- Tax Amount – Report the tax calculated on RSP basis (₹28,571.43)
- Total Invoice Value – Report the sum of the above two values (₹88,571.43)
Summary of Reporting Treatment
| Component | Basis of Reporting | Amount (₹) |
| Taxable Value | Actual sale consideration | 60,000.00 |
| Tax Amount | Calculated on RSP basis | 28,571.43 |
| Total Invoice Value | Taxable value + tax | 88,571.43 |
Conclusion
With effect from 01.02.2026, for specified tobacco and tobacco-related products, GST valuation shifts from the transaction-value model to an RSP-based deemed valuation. While tax is required to be computed on the RSP, reporting in GST systems shall continue to reflect the actual commercial consideration as taxable value, with tax calculated as per the RSP formula, in order to comply with system validations.
This represents a significant compliance change, and taxpayers dealing in notified goods must realign their pricing, invoicing, ERP configurations, and GST reporting processes accordingly.
Feedback can be shared with shiaksuleman739@gmail.com
[1]As per Section 15(1) of the Central Goods & Services Tax Act, 2017 (hereinafter referred to as ACT) and after the inclusions and exclusions as per Section 15(2) & 15(5)
Author Bio
