Value of Supply under GST: Rules Explained

Introduction

The Value of Supply under GST is the taxable amount on which Goods and Services Tax is calculated. Incorrect valuation may lead to wrong invoices, tax differences and compliance issues.

Section 15 of the Central Goods and Services Tax Act, 2017 provides the main rules for determining the Value of Supply under GST. In most transactions, the price actually paid or payable is accepted as the taxable value when the prescribed conditions are satisfied.

What Is Value of Supply under GST?

The Value of Supply under GST is the amount on which CGST, SGST, UTGST or IGST is charged. It may differ from the quoted price because specified additions and eligible discounts must be considered.

GST Amount = Taxable Value × Applicable GST Rate

For example, on a taxable value of ₹1,00,000 at 18%, GST will be ₹18,000.

Transaction Value under Section 15

Under Section 15(1), the Value of Supply under GST is normally the transaction value, meaning the price actually paid or payable for goods, services or both.

Transaction value can be accepted when:

• The supplier and recipient are not related; and
• Price is the sole consideration.

Where these conditions are not satisfied, the applicable GST valuation rules must be used.

Amounts Included in Value of Supply under GST

Section 15(2) requires specified amounts to be included while determining the Value of Supply under GST.

Taxes and Charges under Other Laws

Taxes, duties, cesses, fees and charges under laws other than GST laws are included when separately charged. GST and GST Compensation Cess are not added again.

Amounts Paid by the Recipient

An amount must be included where the supplier was liable to pay it in relation to the supply, but the recipient paid it and it was not already included in the price.

For example, a ₹5,000 testing charge payable by the seller but paid by the buyer may form part of taxable value.

Incidental Expenses

Commission, packing charges and other incidental expenses are generally included. Charges for anything done before delivery or supply may also form part of taxable value.

Interest, Late Fee or Penalty

Interest, late fees and penalties for delayed payment are included in the Value of Supply under GST. Tax on the additional amount generally arises when the supplier receives it.

Price-Linked Subsidies

Subsidies directly linked to the price are included. Subsidies provided by the Central Government or a State Government are excluded for this purpose.

Treatment of Discounts under GST

Discounts do not automatically reduce the Value of Supply under GST. Their treatment depends on when they are given and whether Section 15 conditions are met.

Discount before or at the Time of Supply

A discount given before or at the time of supply can be excluded when it is recorded in the tax invoice.

• Listed price: ₹1,00,000
• Invoice discount: ₹10,000
• Taxable value: ₹90,000

Post-Supply Discount

A discount given after supply can reduce taxable value only when:

• It is based on an agreement entered into at or before the time of supply;
• It is specifically linked to relevant invoices; and
• The recipient reverses the input tax credit attributable to the discount.

A commercial discount may still be offered, but it will not reduce the Value of Supply under GST unless these conditions are met.

When Is Transaction Value Not Applicable?

The normal transaction value may not apply where:

• Consideration is not wholly in money;
• The supplier and recipient are related;
• Supply is between distinct GST registrations;
• Goods are supplied through an agent;
• Price is not the sole consideration; or
• Value cannot be determined under Section 15(1).

In these situations, the Value of Supply under GST is determined under Rules 27 to 31 of the CGST Rules.

Rule 27: Consideration Not Wholly in Money

Rule 27 applies where consideration is partly in money and partly in another form, such as an exchange offer.

Value is determined in this order:

• Open market value;
• Money consideration plus the known money equivalent of non-monetary consideration;
• Value of goods or services of like kind and quality; or
• Money consideration plus the non-monetary value determined under Rule 30 or Rule 31.

For example, a new phone is supplied for ₹20,000 along with an old phone. If the same new phone is normally sold without exchange for ₹24,000, the Value of Supply under GST will generally be ₹24,000.

Rule 28: Related and Distinct Persons

Rule 28 applies to supplies between related persons and distinct GST registrations, other than supplies through an agent.

Value is generally determined using:

• Open market value;
• Value of goods or services of like kind and quality; or
• Rule 30 or Rule 31, in that order.

Where the recipient is eligible for full input tax credit, the invoice value is deemed to be the open market value. This is commonly relevant to branch transfers between separate GST registrations of the same business.

Rule 29: Supply through an Agent

For goods supplied between a principal and an agent, value may be based on open market value. For further supply, the supplier may choose 90% of the agent’s price to an unrelated customer for like goods.

If the value cannot be determined through this method, Rule 30 or Rule 31 applies.

Rule 30: Cost-Based Valuation

Where value cannot be determined under the earlier rules, Rule 30 generally provides that it will be 110% of the cost of production, manufacture, acquisition of goods or provision of services.
If the relevant cost is ₹1,00,000, the Value of Supply under GST under Rule 30 will be ₹1,10,000.

Rule 31: Residual Method

If value cannot be determined under Rules 27 to 30, reasonable means consistent with Section 15 and the valuation rules may be used. For services, the supplier may choose Rule 31 instead of Rule 30.

Special Valuation Provisions

Special methods apply to foreign-currency exchange services, air travel agent services, life insurance services, second-hand goods and pure-agent reimbursements.

For qualifying second-hand goods, taxable value may be the difference between the selling price and purchase price where no input tax credit was claimed on purchase. A negative difference is ignored.

Pure-agent expenses can be excluded only when all prescribed conditions are satisfied. Merely describing an amount as a reimbursement does not qualify it for exclusion.

Practical Examples on Value of Supply under GST

Packing and Delivery Charges

A supplier sells goods for ₹50,000 and charges ₹2,000 for packing and ₹3,000 for delivery forming part of the supply.
Value of Supply under GST: ₹55,000

Invoice Discount

A product is priced at ₹80,000 and a discount of ₹5,000 is shown on the invoice.
Value of Supply under GST: ₹75,000

Delayed-Payment Interest

The original taxable value is ₹1,00,000. The supplier later receives ₹2,000 as interest for delayed payment. The additional ₹2,000 is included in taxable value.

Branch Transfer

A company transfers goods from its Gujarat GST registration to its Maharashtra GST registration. Since the registrations are distinct persons, Rule 28 applies even though both belong to the same legal entity.

GST Valuation Mistakes

Errors while calculating the Value of Supply under GST include:

• Excluding packing, commission or incidental charges;
• Deducting post-supply discounts without satisfying Section 15;
• Ignoring delayed-payment interest;
• Treating every reimbursement as a pure-agent expense;
• Using invoice price for related-party supplies without checking Rule 28;
• Ignoring non-monetary consideration; and
• Failing to maintain valuation records.

Businesses should preserve tax invoices, agreements, purchase orders, discount policies, credit notes, cost sheets, comparable price records and branch-transfer documents.

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Determining the correct Value of Supply under GST can become difficult when a transaction involves discounts, reimbursements, related parties, branch transfers or non-monetary consideration.

Ebizfiling can help businesses review their invoices, apply the correct GST valuation rules and maintain proper supporting records. Our experts also assist with GST registration, gst return filing, bookkeeping and ongoing GST compliance, helping businesses reduce valuation errors and avoid unnecessary tax disputes.

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Conclusion

Correct determination of the Value of Supply under GST is necessary for accurate invoicing, tax payment and input tax credit reporting. Transaction value is the normal basis, but Section 15 requires specified additions and permits only eligible discounts.

Where consideration is non-monetary, the parties are related or supply takes place between distinct GST registrations, the applicable valuation rule must be followed. Businesses should maintain proper agreements, invoices and supporting records so that the Value of Supply under GST can be explained during reconciliation, assessment or audit.

Frequently Asked Questions