GST New Valuation Rules Effective 1 February 2026: Tax Applicability Shifted to MRP

GSTN Advisory on RSP-Based Valuation for Notified Tobacco Goods

Clarification on Reporting Taxable Value and Tax Liability

The GST Network (GSTN) has issued an important advisory clarifying the manner of reporting taxable value and tax liability for notified tobacco goods taxed under RSP-based valuation. The clarification covers reporting requirements across e-Invoice, e-Way Bill, and GST returns (GSTR-1 / GSTR-1A / IFF).

This update is critical for manufacturers, wholesalers, distributors, and all taxpayers dealing in tobacco products notified for valuation based on Retail Sale Price (RSP).

1. Background: RSP-Based Valuation under GST

Under GST provisions, certain notified goods—particularly tobacco products—are subject to tax based on the Retail Sale Price (RSP) printed on the package, after allowing the prescribed abatement, rather than the actual transaction value.

In essence:

  • GST is not calculated on invoice value

  • GST is calculated on RSP minus notified abatement

  • This method is mandated under Section 15(4) of the CGST Act, read with relevant notifications

2. Objective of the GSTN Advisory

The advisory has been issued to:

  • Ensure consistent reporting of taxable value under RSP-based valuation

  • Prevent mismatches between reported value and tax liability

  • Align data reported in e-Invoice, e-Way Bill, and GST returns

  • Minimise system-generated notices and scrutiny due to incorrect valuation

3. Key Clarification by GSTN

(A) Taxable Value to be Reported

For notified tobacco goods covered under RSP-based valuation:

  • ✅ Taxable value must be the RSP-based value (after abatement)

  • ❌ Transaction value or invoice value must not be treated as taxable value

This principle applies uniformly across:

  • e-Invoice

  • e-Way Bill

  • GSTR-1 / GSTR-1A

  • Invoice Furnishing Facility (IFF)

4. Reporting in e-Invoice

While generating e-Invoices for notified tobacco goods:

  • The taxable value field must reflect:

    • RSP

    • Less: notified abatement

    • Resulting assessable value

  • GST rate and tax amount must be computed on this RSP-based taxable value

  • A difference between invoice value and taxable value is legally permissible

Common error to avoid:
Reporting transaction value as taxable value in the e-Invoice, leading to incorrect tax calculation.

5. Reporting in e-Way Bill

For e-Way Bill generation:

  • Taxable value must strictly follow RSP-based valuation

  • Auto-populated values from e-Invoice should not be incorrectly modified

  • Discrepancies between e-Invoice and e-Way Bill data may trigger system alerts

6. Reporting in GSTR-1 / GSTR-1A / IFF

In GST returns:

  • Outward supply details must reflect RSP-based taxable value and correct tax liability

  • This ensures accurate reflection in the recipient’s GSTR-2B

  • Prevents mismatch between tax paid and supplies reported

  • IFF filers must also strictly adhere to this valuation method

7. Impact on Taxpayers

This advisory directly affects:

  • Tobacco manufacturers

  • Cigarette traders

  • Wholesalers and distributors of notified tobacco goods

Incorrect reporting may result in:

  • System-generated notices

  • Return mismatches

  • Audit and assessment issues

  • Demand for differential tax along with interest and penalties

8. Recommended Action Points

Taxpayers should immediately:
✔ Review ERP and billing system configurations
✔ Ensure RSP-based valuation logic is correctly implemented
✔ Train accounting and compliance teams
✔ Reconcile taxable value across e-Invoice, e-Way Bill, and GSTR-1 / IFF
✔ Refer to the detailed GSTN advisory for technical guidance

Conclusion

The GSTN advisory dated 23 January 2026 provides crucial clarity on compliance requirements for notified tobacco goods under RSP-based valuation. Accurate reporting of taxable value across all GST systems is essential to avoid disputes and ensure seamless compliance.

Taxpayers are advised to promptly align their invoicing and return-filing processes with this clarification to remain fully GST-compliant.

Understanding the New HSN Code Requirements for E-Invoices and E-Way Bills

Recently, the government issued Notification No. 78/2020 dated 15th Oct 2020, which introduced new requirements for taxpayers regarding the usage of HSN codes in e-Invoices and e-Way Bills. These changes aim to streamline the taxation process and ensure better compliance.

According to the notification, taxpayers with an Aggregate Annual Turnover (AATO) above Rs 5 Crore are now required to use a minimum of 6-digit HSN codes in their e-Invoices and e-Way Bills. On the other hand, taxpayers with an AATO below Rs 5 Crore must use a minimum of 4-digit HSN codes.

https://einvoice1.gst.gov.in/Others/MasterCodes

HSN codes, also known as Harmonized System of Nomenclature codes, are a globally recognized classification system for goods. They help in identifying and categorizing products for taxation purposes. The implementation of HSN codes in e-Invoices and e-Way Bills ensures transparency and facilitates the seamless flow of information between businesses and tax authorities.

By mandating the use of HSN codes, the government aims to simplify tax compliance, reduce errors, and enhance the efficiency of the overall taxation process. It enables tax authorities to accurately assess the tax liabilities of businesses and ensures that the right amount of tax is collected.

It is important for businesses to adhere to these new requirements and ensure that they use the appropriate HSN codes in their e-Invoices and e-Way Bills. Failure to comply with these regulations may result in penalties and other legal consequences.

In conclusion, the recent notification regarding the usage of HSN codes in e-Invoices and e-Way Bills is a significant step towards improving tax compliance and streamlining the taxation process. Businesses should familiarize themselves with these requirements and ensure that they implement the necessary changes to avoid any potential issues.