The Goods and Services Tax Network (GSTN) has issued a detailed advisory addressing compliance challenges for tobacco products under the new Retail Sale Price (RSP)-based valuation regime. The guidance comes ahead of the February 1, 2026 implementation date and follows recent notifications that fundamentally alter GST valuation methodology for tobacco goods.

New RSP-Based Valuation Framework

Under the framework established by Notifications 19/2025–Central Tax and 20/2025–Central Tax dated December 31, 2025, GST on specified tobacco products will no longer be linked to actual transaction values between suppliers and recipients. Instead, tax liability will be determined based on the Retail Sale Price declared on product packaging, regardless of discounts, promotional pricing, or negotiated sale values.

The notification covers a comprehensive range of tobacco products:

Under this regime, RSP is treated as a tax-inclusive price, with GST computed using a statutory reverse-calculation formula. The deemed taxable value is derived from the RSP after extracting the applicable tax component, rather than being directly reported as the sale price.

System Compliance Challenges

The transition to RSP-based valuation created significant technical challenges within existing GST compliance systems. Current e-invoicing portals, e-way bill systems, and outward supply returns (GSTR-1/IFF) operate on validations requiring the sum of taxable value and tax to not exceed total invoice value.

In RSP-based scenarios, this condition frequently fails as the deemed taxable value derived from RSP can exceed actual commercial consideration, particularly when trade discounts are involved. This mismatch risked invoice rejections, system errors, and filing disruptions despite correct tax computation.

GSTN Advisory Solutions

To address these technical mismatches without altering statutory requirements, GSTN has prescribed specific reporting procedures for notified tobacco goods:

The advisory clarifies that while the taxable value field may reflect commercial consideration for system purposes, tax liability remains anchored to RSP calculations. This approach ensures system functionality while maintaining legal compliance with valuation requirements.

Industry Impact and Expert Perspectives

The RSP-based valuation represents a structural shift for the tobacco sector, delinking GST liability from transaction values to curb discount-driven tax arbitrage and value suppression. This change is expected to result in higher and more predictable tax outflows while bringing greater uniformity and transparency to the sector.

Rajat Mohan, Senior Partner at AMRG & Associates, described the advisory as "practical and timely," noting that it allows reporting of net sale value for system purposes while maintaining RSP-based tax calculations. He emphasized that the clarification benefits manufacturers, importers, and distributors while providing tax authorities with cleaner data and reduced disputes.

Stakeholder Requirements

The advisory affects multiple stakeholder categories requiring immediate attention to compliance procedures:

• Tobacco manufacturers and FMCG companies with tobacco portfolios
• Importers, wholesalers, and distributors
• ERP solution providers and tax professionals
• Compliance teams configuring invoicing workflows

GSTN has emphasized the importance of correct goods classification and strict application of RSP-based valuation where notified, warning that incorrect application could result in demands, interest, and penalties.

The advisory represents a crucial step in translating policy intent into workable compliance mechanisms as India's GST framework evolves toward tighter valuation controls in select sectors. The guidance ensures that system constraints do not undermine legal compliance during the critical implementation phase beginning February 1, 2026.