GST Update: RSP-Based Valuation for Tobacco & Pan Masala from 1 February 2026

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The Government of India has issued two important GST notifications on 31 December 2025 that will significantly change how GST is calculated on certain goods such as pan masala, tobacco, cigarettes, and nicotine products.

These changes will be effective from 1st February 2026 and will impact manufacturers, wholesalers, and traders.

This blog explains the changes in a simple and practical manner.

Why Has the Government Made This Change?

Under Section 15(5) of the CGST Act, 2017, the Government has the authority to prescribe special valuation methods for certain goods.

To curb undervaluation and ensure uniform tax collection, the Government has now decided to calculate GST based on the Retail Sale Price (RSP / MRP) for selected products.

Goods Covered Under RSP-Based GST Valuation

GST valuation based on printed Retail Sale Price (MRP) will apply to the following goods when sold in packaged form:

  • Pan Masala
  • Unmanufactured tobacco (excluding tobacco leaves)
  • Cigarettes, cigars, cheroots, and cigarillos
  • Manufactured tobacco products (other than biris)
  • Tobacco inhalation products without combustion
  • Nicotine substitute inhalation products

What Is Retail Sale Price (RSP) for GST?

For GST purposes, Retail Sale Price (RSP) means:

  • The maximum price (MRP) printed on the package
  • It includes all taxes, cess, duties, and charges
  • If more than one MRP is printed, the highest MRP will be taken
  • If MRP is increased at any stage, the revised MRP will apply
  • If different MRPs are printed for different areas, area-wise MRP will be used

New Rule 31D: How GST Will Be Calculated

The Government has inserted a new Rule 31D in the CGST Rules, 2017.

Key Point:

For the specified goods, the taxable value will be the Retail Sale Price (MRP) minus GST.

This means GST will no longer be charged on the invoice value but will be calculated from the printed MRP itself.

How to Calculate GST from MRP

GST will be calculated using the following formula:

GST Amount = (RSP × GST Rate) ÷ (100 + GST Rate)

Example:

If:

  • MRP = ₹100
  • GST Rate = 28%

GST = ₹21.88
Taxable Value = ₹78.12

Rule 86B Relief for Traders

An important relief has been provided to traders (non-manufacturers).

  • Rule 86B restrictions will not apply to these goods
  • Condition: GST must have been paid by the supplier on RSP basis

Practical Benefit:

  • Reduced cash GST payment
  • Easier use of input tax credit
  • Lower compliance pressure for traders

Effective Date of the Changes

📅 All these amendments will come into force from 1st February 2026

Conclusion

From 1 February 2026, GST on pan masala, tobacco, cigarettes, and nicotine products will be calculated based on the printed MRP, not on the transaction value.

A new valuation rule (Rule 31D) has been introduced, along with relaxation under Rule 86B for traders. Businesses dealing in these goods should prepare their pricing, billing, and GST compliance systems in advance.

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