Valuation of Supply Under GST - How To Calculate The Valuation


Date: 20 Sep 2022

Value Of Supply Under GST


The value of supply for the transaction is the price or consideration paid by the customer to the supplier. It includes extra charges like handling goods and shipping but doesn't include GST. Although stock transfers between two states are not considered sales, they are still taxable transactions in the traditional sense. In these circumstances, the supply value corresponds to the open market value or the anticipated selling price of the products. The following rules and provisions regarding the value of supply made under the GST system are provided under Section 15 of the CGST Act of 2017.


What Is Transaction Value?

When the supplier and recipient are unrelated, and the price is the only determining factor, the price paid or payable under GST is the transaction value. In most cases of regular average trade, invoice value will be taxable. However, the determination of the value of the supply rules has been established in the CGST Rules, 2017, to ascertain the value of some specific transactions.


What are Compulsory Inclusions?

If not already included, all taxes, fees, and other costs imposed by laws other than the GST, as well as incidental expenses incurred by the recipient on behalf of the supplier, such as commission and packaging, and direct subsidies (aside from government subsidies) must be added to the price to determine the taxable value.  


How is The Value Of Supply Determined?

Some transactions are settled in cash, and others through barter or trade; the value of the supply is often equal to the price of the goods or services minus GST. The value of supply is determined using two different sets of rules. 

  • The General Valuation Rule: It is applied to transactions where the buyers pay the price of a product or service in cash. The value of the supply is the total amount paid, less applicable GST.

Value of Supply = Consideration - GST On Consideration 

  • The Special Valuation Rule applies to the transaction where the complete or part payment is in trade instead of cash. 

  • Completely Non-Cash Payment: The value of the supply is the open market value of the goods or services less the GST on that amount if the buyer makes all of the payments in trade.

Value of Supply = Open Market Value(OMV) - GST on OMV

  • Partially Non-Cash Payment: If the buyer pays partly in cash and partially in trade, the value of the supply is the cash price paid plus the open market value of the traded products or services minus GST on the total amount. 

Value of Supply = (Monetary Consideration + In-Kind Consideration) - GST on Total Consideration

Note: The value of the supply includes cess, billable expenses, subsidies, penalties, and all penalties except GST (Any other charges that may or may not be included in the price of goods and services supplied). 


Value Of Supply For Imported Goods and Services Under GST  

The value of goods imported is calculated based on the rules provided in the custom act. The supply value is the customs value of the imported goods plus the import duty paid. 


Customs Value + Import Duty = Value of Supply


The value of taxable supply on an imported service is the total consideration times the taxable percentage. 


Value of Taxable Supply = Total Consideration x Taxable Percentage


Discounted Supplies Under GST

The amount of GST on goods changes when they are discounted. The original product price, less the discount, is its value as a supply.


Value of Supply = Original Value - Discount


The value of the supply is what is liable to the GST, not its initial value.


Supply Of Free Items Under GST

Under the GST provision, you are not allowed to receive an input tax credit (refund of tax paid on the purchase of goods) on goods that were either lost, destroyed, written off, or disposed of by you as gifts or free samples. One way to get an input tax credit on items that you give away for free is by declaring their value as part of the taxable supply on invoices and collecting GST on the same (unless you claim its value/VM as part of taxable supply and collect GST on the same). 


Provision Related To Determination Of Value Of Second-Hand Goods

Suppose no input tax credit was taken on the acquisition of second-hand goods. In that case, the difference between the purchase price and selling price shall be considered the taxable value of the used goods either as such or after minimal alterations that do not change the nature of the items. However, a negative value will not be considered if the selling price is less than the buying price.

Only when a person does not use the input tax credit on an input supply will they be subjected to this valuation rule when purchasing used products. If the Input tax credit is availed, then such supply will be governed by standard GST valuation.