RECENT DEVELOPMENTS IN GOODS AND SERVICES TAX

The Budget 2026 session at the Parliament begun on 29th January, 2026 with the address of President of India and tabling of Economic Survey 2025-26.The Union Finance Minister presented her 9th consecutive Budget for the year 2026-27 today, 1st February, 2026 in the Parliament and also introduced Finance Bill, 2026 in the Lok Sabha. Along with Budget, a complete set of Budget documents is also presented to the Parliament.

This year’s Budget has been presented in the background of economic outlook tabled in the Parliament on 29th January, 2026 in the form of Economic Survey 2025-26. According to Economic Survey (2025-26), GDP growth is forecast to be in the range of 6.8% to 7.2% for FY 2027 in the back drop of robust economic fundamentals.

On Indirect Taxes front, attempt has been made for tariff simplification easy processes and trust based systems, new export opportunities etc. Changes are also proposed in GST law (CGST and IGST) in relation to valuation (post sales discounts), provisional refund for inverted duty cases, Constitution of National Appellate Authority and intermediary services. Customs Tariffs have also been rationalized and processes simplified. The Budget has a focus on simplification, ease of doing business and ease of living.

CBIC has notified new GST rates on tobacco products and withdrawal of compensation cess applicable w.e.f. 01.02.2026. Further, GSTN has issued an advisory for revision in GST rate on tobacco products and on interest collection and enhancements in GSTR-3B

GST collection for the month of January, 2026 has shown a reasonable rise with total gross GST revenue growing by 6.2% to Rs. 1,93,394 crore on YoY basis (January 2026 Rs. 1,82,094 crore). The net GST revenue grew by 7.6% to Rs. 1,70,719 crore (January 2025 Rs. 1,58,701 crore). While the import revenue was more than the domestic revenue, cess collection is Rs. 5,768 crore only. On an annualized basis, consolidated collection in FY 2025-26 upto January, 2026 is Rs. 15,95,752 crore, which is 6.8% higher than in January, 2025.

Revision in GST Rate on Tobacco Products

• Effective 1st February 2026, the GST Council had mandated a 40% GST rate on most tobacco products, including cigarettes and pan masala. This overhaul replaces the existing 28% GST plus compensation cess, aiming to curb tobacco consumption and enhance tax compliance. 
• The GST rate applicable on smoke sales with effect from February 1, 2026 will be as under:

• Key changes effective 01.02.2026:
  • Higher Tax Rate: 40% GST rate applies to cigarettes and tobacco products.
  • MRP-Based Valuation: Tax is calculated based on the Maximum Retail Price (MRP) rather than the transaction value.
  • Additional Levies: A Health and National Security Cess and additional excise duty will be applied to tobacco products.

(Source: Notification No. 19/2025 –Central Tax (Rate) dated 31.12.2025,

Notification No. 03/2025 – Compensation Cess (Rate) dated 31.12.2025

and GSTN Advisory dated 23.01.2026)

Advisory on RSP-Based Valuation of Notified Tobacco Goods under GST

• An advisory on reporting of taxable value and tax liability under RSP-based valuation in e-Invoice, e-Way Bill and GSTR-1 / GSTR-1A / IFF has been issued for the information and guidance of taxpayers.
• Taxpayers shall ensure that the taxable value is computed strictly in accordance with the notified RSP-based valuation formula, and that tax is discharged on such taxable value. For the purposes of reporting in the e-Invoice e-Way Bill systems and GSTR-1 / GSTR-1A/IFF, the Net Sale Value (commercial consideration) shall be reported in the taxable value field. The total invoice value shall be reported as the sum of the net sale value and the tax amount.
• Due care shall be exercised to correctly identify and classify notified goods, and to apply RSP-based valuation only in cases where the same is statutorily applicable.
• This reporting mechanism is only devised as a trade facilitation measure, without any dilution of the statutory provisions or legal requirements prescribed under the GST law.

(Source: GSTN Advisory dated 23.01.2026)

GSTN Advisory on Interest Collection and Enhancements in GSTR-3B

GSTN has issued an advisory informing taxpayers of system-level enhancements in GSTR-3B, effective from the January 2026 tax period, primarily relating to interest computation, liability reporting and ITC utilisation, with the objective of aligning portal functionality with Section 50 of the CGST Act and Rule 88B of the CGST.

Key points of the advisory are summarised below:

• Interest on delayed filing of GSTR-3B will now be auto-computed by the system in Table 5.1, after giving credit for the minimum balance available in the Electronic Cash Ledger (ECL) from the due date till the date of tax payment, in line with the proviso to Rule 88B(1). The interest so computed will be auto-populated and non-editable downward, though taxpayers may increase it if self-assessed interest is higher.
• The Tax Liability Breakup Table in GSTR-3B will be auto-populated based on the document dates of supplies reported in GSTR-1 / GSTR-1A / IFF pertaining to earlier tax periods, where tax is being discharged in the current return. This is intended to ensure accurate period-wise attribution of liability and correct interest computation.
• The values auto-populated by the system are suggestive in nature and taxpayers are permitted to modify them upwards, based on their own records and computations.
• Under Table 6.1, once IGST ITC is fully exhausted, the portal will allow CGST and SGST ITC to be utilised in any order for payment of IGST liability, providing enhanced flexibility in ITC utilisation.
• In cases where registration is cancelled and the last applicable GSTR-3B is filed late, the interest on such delayed filing will be levied and collected through the Final Return under GSTR-10.

Overall, the advisory significantly strengthens automation and non-discretionary interest computation, improves period-wise liability reporting, and introduces operational flexibility in ITC usage, requiring taxpayers to be more vigilant while filing GSTR-3B from January 2026 onwards.

(Source: GSTN Advisory dated 30.01.2026)

GST Collection in January, 2026

• Gross GST collection (domestic plus imports) grew by 6.2% on YoY basis from Rs. 1,82,094 crores to Rs. 1,93,384 crores. However, gross domestic revenue rose by 4.8% only.
• Gross domestic GST collection during 10 months of FY 2026 stood at Rs. 18,43,423 crores showing a growth of 8.3% on YoY basis.
• There was a dip in refunds of 3.1% with refunds of Rs. 22,665 crore only as against Rs. 23,393 crore in January, 2025.
• Gross domestic collection grew by 4.8% to Rs. 1,41,132 crore as against Rs. 1,34,641 crore in January, 2025.
• Net compensation cess collected is Rs. 5,768 crore with (–) 172% negative growth. Compensation cess is continuing only as a transitory arrangement till entire loan and interest liability is fully discharged.
• States / UTs such as Himachal Pradesh, Chandigarh, Haryana, Manipur, Dadra & Nagar and Maharashtra have shown better growth. However, growth in States such as Sikkim, Jharkhand, Chhattisgarh, Madhya Pradesh and Ladakh are in negative zone.

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