The Goods and Services Tax Network (GSTN) has issued a critical advisory regarding the new RSP-based valuation mechanism for the tobacco sector, effective from February 1, 2026.
This shift fundamentally changes how GST is calculated for cigarettes, pan masala, and other tobacco products. To address the technical challenges in reporting this new levy, GSTN has outlined a specific “workaround” for e-Invoices, e-Way Bills, and GSTR-1.
The Core Change: RSP vs. Transaction Value
Previously, GST was charged on the Transaction Value (the price at which goods were sold).
From Feb 1, 2026, for notified goods (like Cigarettes & Pan Masala), GST will be charged on the Retail Sale Price (RSP) printed on the package, irrespective of the actual selling price.
Why the change?
To curb tax evasion and undervaluation in the tobacco supply chain.
Example:
- RSP (Retail Sale Price) printed on pack: ₹200 per pack
- Number of packs sold: 1,000
- Applicable GST rate: 40% (as notified for cigarettes under the RSP-based regime)
- Actual commercial price (after discount): ₹160,000 gross − ₹40,000 discount = ₹120,000 net sale value
GSTN’s Reporting “Workaround”
GSTN has advised the following reporting methodology in e-Invoices, e-Way Bills, and GSTR-1:
1. Retail Sale Price
RSP = 200 x 100 = ₹ 200,000
2. Tax Amount Field
Report the Tax Amount calculated strictly as per the RSP Formula.
Tax Amount = (RSP x GST Rate) / 100 + GST Rate
GST = (200,000 x 40) / 100 + 40 = ₹ 57142
Note: You may need to manually override the system-calculated tax.
3. Deemed Taxable Value
Deemed Taxable Value = RSP – Tax Amount
Deemed Taxable Value = ₹ 200,000 – ₹ 57142 = ₹ 142,858
Note: The “Deemed Taxable Value” is used only to calculate the tax. For reporting on the invoice face, you must still show the Commercial Transaction Value.
4. Total Invoice Value Field
Formula: Net Sale Value + Tax Amount
Invoice Value = ₹ 120,000 + ₹ 57,142= ₹ 177,142
Comparison with Actual Transaction Value
| Component | RSP-Based Value (New Method) | Actual Transaction (Old Method) |
| Value Based for GST | ₹ 142,858 | ₹ 120,000 |
| GST payable | ₹ 57,142 | ₹ 48,000 (40% of 120,000) |
| Effective Rate of GST | 47.6% ~ | 40% |
Reporting on GSTN Portal
| Component | RSP-Based Value (New Method) | Actual Transaction (Old Method) |
| Taxable Value | ₹ 120,000 | ₹ 120,000 |
| GST Amount | ₹ 57,142 | ₹ 48,000 |
| Total Invoice Value | ₹ 177,142 | ₹ 168,000 |
Notified Products (HSN Codes)
This mechanism applies to:
- 2106 90 20: Pan Masala
- 2401: Unmanufactured Tobacco
- 2402: Cigarettes, Cigars, Cheroots
- 2403: Other Manufactured Tobacco
- 2404: Tobacco/Nicotine substitutes for inhalation
Conclusion
The key takeaway is “Report Actual, Pay on RSP”.
Your invoice will show the price you are actually collecting from the dealer, but the tax column will reflect the higher liability based on the MRP. Ensure your ERP software is updated to handle this “disconnect” between value and tax.
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Implementing RSP-based valuation requires precise ERP configuration.
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