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Goods and Services Tax Network (GSTN) | Central Board of Indirect Taxes and Customs (CBIC)
Effective February 1, 2026, the Government of India has mandated a Retail Sale Price (RSP)-based valuation for specific tobacco products. The taxable value for GST purposes is derived from the RSP printed on the package, irrespective of the actual commercial consideration between supplier and recipient. This ensures uniform tax collection across high-margin tobacco sectors, even when goods are sold at high discounts.
Statutory Computation and Deemed Taxable Value
For notified goods, tax is computed using the formula: Tax Amount = (RSP × GST Rate %) / (100 + Sum of applicable tax rate). From this, the Deemed Taxable Value is derived by subtracting the tax amount from the total RSP. This Deemed Taxable Value acts as the statutory tax base, ensuring that GST liability remains pegged to the retail price rather than fluctuating transaction values.
Reporting and System Validations
While tax is calculated on the RSP, the reporting protocol requires specific manual adjustments in e-Invoices, e-Way Bills, and GSTR-1.
Field Mapping: Taxpayers must report the Net Sale Value (actual transaction price) in the taxable value field, while the tax amount reported must strictly follow the RSP-based formula.
System Overrides: Because current GST systems validate that Taxable Value + Tax equals Total Invoice Value, taxpayers must manually edit system-calculated tax fields to ensure compliance with the RSP-derived statutory liability.
Self-Assessment: Taxpayers are responsible for self-calculating and verifying the accuracy of these three fields prior to submission.
What is the “Deemed Taxable Value” in this new tobacco tax regime? The Deemed Taxable Value is a calculated figure derived by subtracting the statutory tax amount (calculated using the RSP-based formula) from the total RSP. It serves as the legal tax base for the transaction, replacing the actual sale price on the invoice for tax calculation purposes, even if the goods were sold at a significant discount to the consumer.
How does this change the way consumers pay for tobacco at a local "Kirana" store? At the counter, consumers may find that the price of your preferred brand has increased, even if the "GST rate" (the percentage) remains the same. This is because the tax is now calculated on the maximum printed price (MRP) instead of the lower price the shopkeeper might have previously reported to the government. Consumers are effectively paying a more accurate "sin tax" that manufacturers can no longer bypass through wholesale discounting.
Policy Relevance
The introduction of RSP-based valuation marks a critical step in standardizing revenue from the “sin goods” sector.
Revenue Protection: By taxing based on the printed RSP, the government prevents revenue loss caused by under-invoicing or excessive discounting in the informal and formal tobacco markets.
Trade Facilitation: The GSTN advisory provides a clear reporting mechanism that allows existing “transaction-value” systems to accommodate “RSP-based” laws without requiring a complete software overhaul.
Market Regulation: This policy ensures a level playing field where manufacturers cannot reduce their tax burden simply by lowering their wholesale prices, thereby maintaining a consistent tax-to-RSP ratio.
Health and Fiscal Balance: The policy acknowledges the economic reality that if tobacco use drops too sharply, state revenues suffer; hence, tax increases are incremental to maintain a balance between health targets and fiscal stability.
Relevant Question for Policy Stakeholders: How will the GSTN monitor discrepancies between actual commercial sale prices and RSP-derived values to prevent the proliferation of “cash-only” tobacco sales outside the official reporting system?
Follow the full news here: Advisory on RSP-Based Valuation of Notified Tobacco Goods under GST