Tax, GST & International Trade Blog

The GST Network (GSTN) has issued a detailed advisory clarifying the reporting mechanism for taxable value and tax liability in cases where Retail Sale Price (RSP)-based valuation is applicable. This advisory follows the issuance of Notification Nos. 19/2025-Central Tax and 20/2025-Central Tax dated 31st December 2025, which prescribe RSP-based valuation for specified tobacco and tobacco-related products with effect from 01st February 2026. 

Under this valuation mechanism, GST liability is not linked to the actual transaction value between supplier and recipient. Instead, tax is computed on the RSP declared on the package, irrespective of commercial discounts or negotiated sale prices.
This shift creates practical reporting challenges in e-Invoice, e-Way Bill and GSTR-1 systems, which are fundamentally designed around a transaction-value model. The GSTN advisory addresses this gap and provides system-compatible reporting guidance for taxpayers.

1. Introduction of RSP-Based Valuation

1.1 Applicable Notifications

RSP-based valuation has been notified through:

• Notification No. 19/2025 – Central Tax
• Notification No. 20/2025 – Central Tax
  (both dated 31st December 2025)

These notifications are effective from 01st February 2026.

1.2 Goods Covered under RSP-Based Valuation

The following HSN codes and goods are notified for RSP-based valuation:

For these goods, GST valuation is mandatorily linked to RSP, not the actual sale price.

2. Computation of GST under RSP-Based Valuation

2.1 Statutory Formula for Tax Computation

For notified goods, GST must be computed using the following formula:

• Tax Amount

(RSP × GST Rate in % of applicable taxes) / (100 + Sum of applicable tax rate)

• Deemed Taxable Value

RSP − Tax Amount

GST liability is thus embedded in the RSP, which is treated as tax-inclusive.

2.2 Illustrative Computation (IGST @ 40%)

1. Item Particulars (RSP-based notified goods)

 2. Statutory RSP-Based Computation

 3. Actual Commercial Transaction Values

 4. Total Invoice Value (commercial consideration + statutory tax)

3. System Validation Issue in GST Returns & e-Systems

3.1 Existing System Validation Rule

The current validation across:

• e-Invoice
• e-Way Bill
• GSTR-1 / GSTR-1A / IFF

is based on the rule:

This validation works for transaction-value-based supplies but fails for RSP-based valuation, where the deemed taxable value is higher than the actual sale value.

4. Reporting Guidance for RSP-Based Supplies

To ensure seamless compliance, GSTN has prescribed a special reporting method strictly as a trade facilitation measure.

4.1 Reporting in e-Invoice and e-Way Bill

Taxpayers should report:

• Taxable Value → Net Sale Value (Commercial Consideration)
• Tax Amount → Computed strictly as per RSP-based formula
• Total Invoice Value → Net Sale Value + Tax Amount

Illustrative Reporting:

4.2 Reporting in GSTR-1 / GSTR-1A / IFF

The same reporting logic applies:

• Report Net Sale Value in taxable value field
• Report RSP-based tax amount
• Edit system-computed tax, if required, to reflect the correct RSP-based tax

This ensures that statutory tax liability is discharged correctly, while system validations remain satisfied.

5. Reporting Mechanism – Key Clarifications

• All values are self-assessed and self-reported by the taxpayer.
• System-calculated values must be manually corrected, wherever necessary.
• This mechanism:
  • Applies only to notified HSNs
  • Does not dilute statutory valuation provisions
  • Is introduced solely for system compatibility

     

6. Advisory to Taxpayers and Stakeholders

GSTN advises taxpayers to:

• Apply RSP-based valuation strictly where notified
• Ensure accurate classification of goods
• Discharge tax based on deemed taxable value derived from RSP
• Report commercial value only for system reporting purposes

Conclusion

The introduction of RSP-based valuation for tobacco and related products marks a significant departure from transaction-value-based GST computation. While the legal framework mandates tax calculation based on RSP, the existing GST systems necessitate a special reporting approach to avoid validation errors.

The GSTN advisory provides a clear, compliant, and system-aligned solution, enabling taxpayers to meet statutory obligations without technical disruptions. Businesses dealing in notified goods must update their billing, ERP, and compliance processes ahead of 01st February 2026 to ensure smooth implementation.

Notification Reference:  GSTN
23 /01 /2026