What Is Valuation Rules Under GST?

In every tax law, tax is payable on a percentage (%) basis. In GST also, tax is payable on% of value of supply. The valuation Rules under GST It becomes very important to know that what is the value of supply and how to arrive. For valuing the supply of goods and services, GST law has prescribed rules under Section 15.

Guide to determine the value of supply:

Case 1: Where the amount paid is the sole consideration and recipient is not related:

The taxpayer and customer is nor related and price paid is the only consideration, then value of supply will be equal to transaction value.

Example: The price of 1 KG of wheat in the normal course of business is Rs. 50. If a taxpayer sells the wheat at Rs.45 to an unrelated person. Then the value of supply will be Rs. 45 and not Rs.50.

What is the transaction value as per valuation rules under GST?

Transaction value include the following elements:

The amount paid or payable to taxpayer.
Taxes, duties, cess, fees and charge other than tax or cess levied under GST.
Payments to third party on behalf of taxpayer
Incidental expenses, like commission and packaging, charges paid to taxpayer.
Interest or late fee paid in relation to late payment.
Subsidies, directly linked to price, other than subsidy given by the government.

Further, if customer/recipient supply components to a taxpayer for free of cost. Then the value of those components should not be added to the value of supply.

what is treatment of discount given to the customer?

Below are the cases where discount reduced from a value of supply:

Discount given on or before the supply and mentioned on invoice.
Post supply discount: For post supply discount below 2 conditions need to be met:

1. In agreement, discount terms are agreed at time of supply and can be worked out invoice-wise.

2. Customer should reverse the proportional input tax credit. The taxpayer will raise the credit note for the discount.

Transaction, which is not covered under the above rule and separate rules are prescribed:

The service of purchase or sale of foreign currency, including money changing.
The service of booking tickets by an air travel agent.
Life insurance service.
Buying and selling of second-hand goods.
Voucher or token which are redeemable against goods or services.
Supply in case of lottery, betting, gambling and horse racing.
Services provided without consideration between distinct person under GST.

Refer the adjacent link for valuation of above supplies: Click here

If supply is between related parties or price is not the sole consideration:

The valuation will be based on the valuation rules prescribed under GST. Rules 27 to 31 of CGST are prescribed for valuation.

Case 2: Value of supply where consideration is not wholly in money (as per Rule 27)

Example where consideration is not wholly in money is Barter exchange, etc.

The value will be determined in the following manner:

The open market value of such supply.
If open market value is not available, then money received plus money equivalent value of non-consideration.
If value is not determined based on the above method, then the value of like kind and quality product needs to be considered.
Where value is not ascertainable by using the above method, then the value of transaction will be cost of supply + 10% mark-up (as per Rule 30). Otherwise, value will be based on Rule 31.

Case 3: value of supply between 2 distinct or related persons, other than through agent (as per Rule 28):

The method of valuation for transactions between a related person or distinct person is:

The open market value of such supply.

* The invoice value will be considered as open market value, where the recipient is eligible for the ITC.

If value is not determined based on the above method, then the value of a like kind and quality product needs to be considered.
Where value is not ascertainable by using the above method, then the value of transaction will be cost of supply + 10% mark-up (as per Rule 30). Otherwise, value will be based on Rule 31.

If goods are supplied as such by the recipient, then value will be 90% price charged for supply of same or like kind goods to unrelated customer. This method is optional to the taxpayer.

Case 4: valuation in case of supplied or received through an agent (as per Rule 29):

The said rule is applicable only when the supply of goods is between principal and agent. This rule does not cover commission-based services.

The value will be determined in the following manner:

1. The open market value of such supply or

90% of price charged for supply of same or like kind goods to unrelated customer.

2. Where value is not ascertainable by using the above method, then the value of transaction will be the cost of supply + 10% mark-up (as per Rule 30). Otherwise, value will be based on Rule 31.

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