GST is an 'ad valorem' tax, meaning it's calculated as a percentage of the value of the goods or services.
The "Value of Supply" is the amount on which GST is charged. Section 15 of the CGST Act tells us how to determine this value.
In most normal business transactions, the value of supply is the Transaction Value.
The transaction value is the price actually paid or payable for a supply.
If either condition fails, we must use the Valuation Rules.
The relationship can influence the price, so these transactions are valued differently.
Section 15(2) lists items that must be included in the value.
Any tax, duty, cess, or fee levied under any law other than GST acts must be included if charged separately by the supplier.
Example: Excise Duty, Municipal Tax charged on a product.
Note: TCS under Income Tax Act is NOT included.
This covers situations where the supplier is liable to pay an amount, but the recipient pays it directly to a third party.
This amount must be added to the value of supply.
Example: In a 'FOR Destination' contract, the supplier is liable for freight. If the recipient pays the transporter directly, that freight amount is added to the value of goods.
Any amount charged by the supplier for anything done in respect of the supply, at or before the time of supply, must be included.
Any penalty, late fee, or interest charged for delayed payment of consideration must be added to the value of supply.
Subsidies directly linked to the price are included in the value, UNLESS the subsidy is given by the Central or a State Government.
Discounts can be deducted from the value, but only if they meet specific conditions under Sec 15(3).
A discount is deductible if it is given before or at the time of supply AND it has been duly recorded in the invoice.
This is the most common type of discount, like a trade discount shown on the bill.
Discounts given after the supply (e.g., volume discounts) can also be deducted, but the conditions are stricter.
If these conditions aren't met, the discount cannot reduce the GST liability.
When Transaction Value [Sec 15(1)] cannot be used, we turn to the CGST Rules (27 to 35).
The rules must be applied in a specific sequence.
When consideration is not fully in money, value is determined sequentially:
The valuation sequence is the same as Rule 27 (OMV → Like Kind → Cost/Residual).
If the recipient is eligible for full Input Tax Credit, the value declared in the invoice is accepted as the value of supply. This simplifies compliance.
If goods are intended for further supply as such by the recipient, the supplier can optionally value the goods at 90% of the price charged by the recipient to their unrelated customer.
Value of corporate guarantee to a related person is 1% of the amount guaranteed or actual consideration, whichever is higher.
For goods supplied between a principal and an agent (where agent invoices in their own name):
OR
If value cannot be determined, Rule 30 or 31 applies.
This is a fallback method. If value cannot be determined by Rules 27-29, the value is taken as 110% of the cost of production, acquisition, or provision of service.
The "Best Judgement" method. Value is determined using reasonable means consistent with GST principles. A service provider can opt for this rule directly after Rule 29, skipping Rule 30.
These have specific valuation rules that override all others.
The value of supply is the total amount paid, payable, or deposited with the supplier by the player. This includes money's worth and virtual digital assets.
Winnings that are re-used by the player for further games without withdrawal are NOT considered as a fresh deposit and are not included in the value of supply again.
For certain supplies, the supplier has the option to use these special, simplified valuation methods instead of the standard rules.
Value can be the difference between the transaction rate and RBI reference rate, OR a slab-based value (e.g., 1% of gross amount up to ₹1 Lakh, subject to a minimum of ₹250).
Value is deemed to be 5% of the basic fare for domestic bookings and 10% for international bookings.
The value of supply for life insurance business depends on the policy type.
This is also known as the Margin Scheme. It applies to dealers in second-hand goods.
No Input Tax Credit (ITC) should have been availed on the purchase of such goods.
The value is the difference between the selling price and the purchase price (i.e., the margin). If the margin is negative, the value is taken as nil.
A "Pure Agent" is a person who makes a payment to a third party, on behalf of their client, as part of a service.
Expenditure or costs incurred by a supplier as a pure agent of the recipient are excluded from the value of their own supply.
Example: A Customs Broker pays customs duty on behalf of an importer. The reimbursement of this duty is not part of the broker's taxable value.
To exclude a reimbursement, all conditions must be met:
Value of Supply is the foundation for calculating GST liability.