2019-12-02 14:18:19GST CenterEnglishValue of supply under GST is the transactional value. This article covers various rules relating to value of supply in GST under different...https://quickbooks.intuit.com/in/resources/in_qrc/uploads/2019/12/What-is-Value-of-Supply-Under-GST.jpghttps://quickbooks.intuit.com/in/resources/gst-center/value-of-supply/What is the Taxable Value of Supply under GST?

What is the Taxable Value of Supply under GST?

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As per section 15 of the CGST act, the transactional value is the value of taxable supply under GST. The term ‘transaction value’ is defined as:

  • price actually paid or payable for the underlying goods or services
  • the supplier and recipient of such supply are not related persons and
  • price of such goods or services supplied is the only consideration for such a supply

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What is Included While Determining the Value of Supply?

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Following are the things that need to be included while determining the value of supply under GST:

  • any amount of tax, duty, cess, fees and other charges imposed under any law that is in force for the time being. These taxes, duties and charges are other than the ones levied under the GST Act, SGST Act, IGST Act or UTGST Act and GST (Compensation to States) Act. Provided all these charges are included in the value of supply only if the supplier levies them separately.
  • amount that a supplier is supposed to pay with regards to such a supply. But such an amount has been spent by the recipient of such a supply and is not included in the price actually paid or payable for supply of goods or services.
  • other incidental charges including commission and packing levied by the supplier to the recipient of a supply. This incidental expenditure also includes any amount charged by the supplier for additional things done by the supplier in respect of such a supply. Provided such additional work has been done at the time of or before the delivery of goods or services.
  • imposition of any interest or late fee or penalty for delaying payment of any consideration for any supply
  • any subsidies directly related to the price of goods or services. However, the subsidies provided by the central and state governments are excluded.

What is Excluded While Determining the value of Supply?

  • Any amount of discount given before or at the time of supply of goods or services. Provided such a discount has been duly specified in the invoice issued for such a supply.
  • Discount given after the supply of goods and services has been made. Provided:
    • the amount of the discount was known or agreed at the time of supply. This means that the discount to be given was decided in the terms of agreement entered into at or before the time of such a supply. Further, the discount was also associated with the relevant invoices.
    • ITC with regards to the discount so decided in the terms of agreement has been reversed by the recipient of supply.

Note: If the value of supply of goods or services cannot be determined as per section 15(1) of the CGST act, it will be determined in the manner as may be prescribed.

Rules for Taxable Value of Supply Under GST

A. Rule 27: Value of Supply in Case the Consideration for a Supply is not Completely in Money

There are cases where the consideration for the supply of goods or services is not wholly in money. In such cases, the value of supply shall be:

  1. Open market value of such a supply
  2. Total of consideration in money plus any amount in money which is equivalent to the consideration not in money. Provided the open market value is not known at the time of supply.
  3. Value of goods or services that are equal in quality or kind to the goods or services supplied. Provided value of supply in clause 1 or 2 is not available.
  4. Total of consideration in money plus any amount in money which is equivalent to the consideration not in money as per Rule 30 or Rules 31. Provided value of supply in clause 1, 2 or 3 is not available.

B. Rule 28: Value of Supply of Goods or Services or Both Between Distinct Persons or Related Persons

Rule 28 relates with value of supply in a case where the supply of goods or services or both takes place between distinct persons or related persons. However, the related persons do not cover the scenario of principal-agent relationship.

Thus, the value of supply in this case shall be:

  1. Open market value of such supply
  2. Value of goods or services that are equal in quality or kind to the goods or services supplied. Provided value of supply in clause 1 is not available.
  3. Value as determined by applying Rule 30 or Rule 31 in that order. Provided that the value of supply cannot be determined as per Clause 1 or Clause 2 above.

C. Rule 29: Value of Supply of Goods Made or Received Through An Agent

This rule covers the case of supply between a principal and an agent. In such a scenario, the value of supply shall be:

  1. Open market value of the goods supplied or 90% of the value of goods supplied by an agent to his customer who is not a related person. Provided the goods supplied by an agent to his customer are of the same quality and kind as supplied by the principal to the agent. And the agent intends to sell the goods received by him from the principal in the market.
  2. Value as determined by applying Rule 30 or Rule 31 in that order. Provided that the value of supply cannot be determined as per Clause 1 above.

D. Rule 30: Value of Supply of Goods or Services or Both Based On Cost

There are scenarios when the value of supply of goods or services or both cannot be determined by applying any of the above rules. In such cases, the value of such a supply shall be 100% of the cost of:

  1. production of such goods or
  2. acquisition of such goods or
  3. provision of such services

E. Rule 31: Residual Method to Determine The Value of Supply of Goods Or Services Or Both

There can also be scenarios where the value of supply of goods or services or both cannot be determined by applying rules 27 to 30.

In such scenarios, the value of supply needs to be determined by using rational means. Such means must be in accordance with the principles and provisions of Section 15 of the CGST Act as well as Chapter IV of CGST Rules.

Furthermore, the supplier of services can opt for this rule and ignore Rule 30.

F. Rule 32: Determination of Value in Respect of Certain Supplies

Rule 32 specifies the regulations to determine the value of supply in case of specific supplies.

A. Purchase or Sale of Foreign Currency

This case relates to determining the value of supply in cases where a person or an entity provides services relating to purchase or sale of foreign currency.

Thus, the value of supply in case of such services can be determined in the following ways:

  1. The value of supply shall be equal to total units of that currency multiplied by the difference between buying or selling rate of currency and Reserve Bank of India’s reference rate for that currency. However, the value of supply shall be one percent of the gross amount of Indian Rupees provided or received by the person changing the money. This would be the case where RBI’s reference rate for a currency is not available. Furthermore, there are cases where neither of the currencies exchanged is Indian Rupees. In such a scenario, the value of supply shall be equal to the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day. Such a conversion into Indian Rupees is done at the reference rate provided by the Reserve Bank of India.
  2. The supplier may also choose to value services relating to purchase or sale of foreign currency in the following way:
    1. 1% of the gross amount of currency exchanged for an amount up to Rs 1 Lakh. This is subject to a minimum amount of two hundred and fifty rupees.
    2. Rs 1000 and 0.5% of the gross amount of currency exchanged for an amount exceeding Rs 1 Lakh but less than Rs 10 Lakh
    3. Rs 5,500 and 1/10th of one per cent of the gross amount of currency exchanged for an amount exceeding Rs 10 Lakh. This is subject to a maximum amount of sixty thousand rupees.

B. Booking of Tickets

There are cases where an air travel agent provides services pertaining to booking of tickets for travel by air. In such scenarios, the value of supply shall be equal to

  1. 5% of the basic fare in case of domestic bookings of passage for travel by air and
  2. 10% of the basic fare in case of international bookings of passage for travel by air

C. Life Insurance Business

There are entities or persons running life insurance business. Thus, the value of supply of such services shall be:

  1. gross premium charged from a policy holder less amount allocated for investment or savings on behalf of the policy holder. Provided such an amount of savings or investment is communicated to the policy holder at the time of supply of service.
  2. 10% of single premium charged from the policy holder in case of single premium annuity policies other than those covered in clause (1) or
  3. 25% of the premium charged from the policy holder in the first year and 12.5% of the premium charged from the policy holder in subsequent years in all the other cases. Provided this rule shall not apply to cases where the policyholder pays the entire premium only towards risk cover in life insurance.

D. Buying and Selling of Second Hand Goods

There are cases where persons or entities deal in buying and selling of second hand goods i.e., used goods. Such goods are supplied either as such or after such minor processing that does not change the nature of goods. Furthermore, no input tax credit has been availed on the purchase of such goods.

Thus, the value of supply of such services shall be the difference between the selling price and the purchase price. However, the value of such supply shall be ignored if the difference is negative.

This value can be ignored only if the following condition is satisfied. According to this condition, the purchase value of goods repossessed from an unregistered defaulting borrower for the purpose of recovery of a loan shall be deemed to be:

  • the purchase price of such goods by the defaulting borrower
  • reduced by five percentage points for every quarter or part thereof.

And such a purchase value is between the date of purchase and the date of disposal by the person making such repossession.

E. Token Or Voucher or Coupon Or Stamp

There are cases where a token, or a voucher, or a coupon, or a stamp (other than postage stamp) is redeemable against a supply of goods or services or both.

In such cases, the value of supply of such services shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.

F. Government Notified Service Providers

There are cases where the Government notifies certain service providers to supply goods and services. Further, such a notification is given by the government on the recommendation of the Council. And this is as per Section 25, paragraph 2 of Schedule I of the CGST Act.

Thus, the value of taxable services provided by such class of service providers shall be deemed to be NIL.

G. Rule 33:Value Of Supply Of Services In Case Of Pure Agent

There are scenarios where a supplier incurs costs or expenditures as a pure agent of the recipient of supply. In such cases, the value of supply shall exclude such costs provided if the following conditions are satisfied:

  • the supplier enters into a contractual agreement with the recipient of the supply to act as his pure agent. Furthermore, as a pure agent, the supplier has the authority to incur expenditure or costs in the course of supply of goods or services
  • payment made by the pure agent on behalf of the recipient of supply has been separately mentioned in the invoice issued by the pure agent to the recipient of service; and
  • the supplier neither intends to hold nor holds any title to the goods or services procured as a pure agent of the recipient of supply. Furthermore, the supplier acting as a pure agent does not use the goods or services so procured for his own use.

H. Rate Of Exchange Of Currency, Other Than Indian Rupees, For Determination Of Value

  • There are cases where an entity needs to determine the rate of exchange for estimating the value of taxable goods. Such a value needs to be estimated at the date of time of supply of such goods as per section 12 of the CGST Act. Thus, in such cases, the rate of exchange shall be the applicable rate of exchange as notified by the Board under section 14 of the Customs Act, 1962.
  • Then, there are cases where an entity needs to determine the rate of exchange for estimating the value of taxable goods. Such a value needs to be estimated at the date of time of supply of such goods as per section 13 of the CGST Act. Thus, in such cases, the rate of exchange shall be the applicable rate of exchange as per the generally accepted accounting principles.

I. Value Of Supply Inclusive Of Integrated Tax, Central Tax, State Tax, Union Territoty Tax

This rule pertains to the cases where value of supply is inclusive of integrated tax or central tax, State tax, Union territory tax. In such cases, the value of supply shall be determined in the following manner:

Tax Amount = (Value Inclusive of Taxes * x% IGST rate)/(100 + sum of tax rates as applicable in %)

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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