GST Twist From Feb 2026: Pay Tax On MRP Not Sale Price

With effective from 1 February 2026, the Department made an important changes while filing GSTR-1 for notified tobacco goods under GST based on new RSP (Retail Sale Price, also known as MRP or Maximum Retail Price) valuation. These changes mandate tax calculation on the MRP printed on the goods, even if sold at a lower actual price, to prevent under-valuation through discounts.  

Government says

If MRP is Rs 500, we'll assume tax is already inside Rs 500, no matter what price you sell at.

One Golden Rule to Remember

MRP is treated as the final price including GST.

Formula for Tax and Taxable Value from MRP

For goods notified under RSP-based valuation, tax is required to be computed using the following formula:

The GST amount (tax liability) is calculated as​:

• Tax Amount = (MRP × GST Rate in %) / (100 + GST Rate)

The taxable value is then MRP minus the GST amount:

• Deemed Taxable Value = MRP − GST Amount

RSP is always treated as inclusive of GST, ensuring tax reflects the maximum declared retail price regardless of discounts.

For Example

The item particulars are as follows (RSP-based notified goods)

Computation as per RSP formula (IGST @ 40%)

Under RSP-based valuation, the deemed taxable value and tax amount are required to bederived from the RSP (tax-inclusive).

If you sell at Rs 80,000 after Rs 20,000 discount, net sale will be Rs 60,000 but total invoice value becomes:

How to file GSTR-1 for MRP-Based Tobacco Supplies?

Report under relevant HSN chapters (21/24 for notified goods) in GSTR-1 such as -

• 2106 90 20 - Pan masala
• 2401 -Unmanufactured tobacco; tobacco refuse (other than tobacco leaves)
• 2402 - Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
• 2403 - Other manufactured tobacco and manufactured tobacco substitutes; “homogenised” or “reconstituted” tobacco; tobacco extracts and essences (other than biris)
• 2404 11 00 - Products containing tobacco or reconstituted tobacco intended forinhalation without combustion
• 2404 19 00 - Products containing tobacco or nicotine substitutes intended forinhalation without combustion

GSTR-1 Reporting Steps

For supplies covered under RSP-based valuation, taxpayers must report invoice details in the following manner in GSTR-1/1A/IFF Forms:

• The Net Sale Value (i.e., the actual transaction value / commercial consideration) shall be reported in the taxable value field. Accordingly, Rs 60,000.00 shall be reported as the taxable value, as illustrated above.
• Once actual transaction value enter system will auto-calculate tax i.e., Rs 24,000 but the tax amount shall be computed strictly in accordance with the RSP-based valuation formula - a tax amount of Rs 28,571.43 shall be reported in the tax amount field, which is derived based on the deemed taxable value of Rs 71,428.57 computed as per the RSP-based formula. However, the GSTR-1 reflects the system calculated tax amount that is different from the tax amount leviable, the same may be edited to report the correct tax amount leviable under RSP based valuation in accordance with the notification i.e., as illustrated above, a tax amount of Rs 28,571.43.
• The total invoice value shall be reported as the sum of the Net Sale Value and the tax amount. Accordingly, the total invoice value shall be Rs 88,571.43.

Conclusion

From February 1, 2026, tobacco goods GST uses fixed MRP-based tax in GSTR-1, overriding sale prices or discounts. Report actual net sales as taxable value, add MRP-calculated GST, and manually edit fields for compliance.