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Value of Taxable Supply - GST

May 17, 2017

Value of the supply

Section 15 of the Goods and services Act, 2017 deals with the determination of value of taxable supply. It is very important to understand the value on which GST is required to calculate.

It states value to taxable supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for such supply if:

1. Supplier and the recipient of the supply are not related, and

2. The price is the sole consideration for the supply.

Inclusion in value of supply

Value of the supply shall include:

1. Any taxes, duties, cesses, fees and charges levied under any law for the time being in force except GST, if charged separately by the supplier.

2. Expenses incurred by the recipient on behalf of the supplier.

3. Incidental expenses, such as, commission and packing, charged by the supplier to the recipient.

4. Interest or late fee or penalty for delayed payment of any consideration for any supply.

5. Subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.

Treatment of Discount in Value of Supply

Value of the supply shall not include:

Discount which is given––

(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and

(b) after the supply has been effected, if—

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

Determination of value when the consideration is not wholly in the form of money

Rule 1 and Rule 4 of Draft Valuation Rules

1. Open market value of the supply.

2. In case open market value is not available total money value of supply (monetary consideration plus money value of non-monetary consideration).

3. In case it is not possible to determine the value as above, then value of supply of the like kind and quality.

4. Further if it is not possible to determine taxable value through above methods then cost plus ten percent markup method will be adopted to determine the value.

5. Finally in the absence of all the above options the value is determined as per residual method i.e. best judgment assessment relying on any reasonable means that is consistent with the statutory provisions as well as any other previous rules.

Value of supply of goods or services or both between distinct or related persons, other than through an agent

Rule 2 and Rule 4 of Draft Valuation Rules

1. Open market value of the supply.

2. In case it is not possible to determine the value as above, then value of supply of the like kind and quality.

3. Further if it is not possible to determine taxable value through above methods then cost plus ten percent markup method will be adopted to determine the value.

4. Finally in the absence of all the above options the value is determined as per residual method i.e. best judgment assessment relying on any reasonable means that is consistent with the statutory provisions as well as any other previous rules.

However, where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of goods or services.

Value of supply of goods made or received through an agent

Rule 3 and Rule 4 of Draft Valuation Rules

1. Open market value of the goods; or at the option of the supplier, 90% of the price charged for the supply of goods of like kind and quality by the recipient to his unrelated customer.

2. If it is not possible to determine taxable value through above methods then cost plus ten percent markup method will be adopted to determine the value.

3. Finally in the absence of all the above options the value is determined as per residual method i.e. best judgment assessment relying on any reasonable means that is consistent with the statutory provisions as well as any other previous rules.

Meaning of Open Market Value

“open market value” of a supply of goods or services or both means the full value in money, excluding GST and the cess, where the supplier and the recipient of the supply are not related and price is the sole consideration, to obtain such supply at the same time when the supply being valued is made.

Meaning of supply of goods or services or both of like kind and quality

“supply of goods or services or both of like kind and quality” means any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and reputation of the goods or services or both first mentioned, is the same as, or closely or substantially resembles, that supply of goods or services or both.

Value of supply of service in relation to purchase or sale of foreign currency, including money changing

1. Option 1

I. For a currency, when exchanged from, or to, Indian Rupees (INR)

(a) Value of service = (Buying rate or selling rate – Reference rate of RBI) x Total units of currency

(b) Where the RBI reference rate for a currency is not available:

Gross amount of Indian Rupees provided or received x 1%

II. Where neither of the currencies exchanged is Indian Rupee

1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee

2. Option 2

Gross amount of currency exchange (GCE)

Value of service

Up to Rs. 1,00,000/- GCE x 1%

1,00,001/- to 10,00,000/- Rs. 1000 + GCE x 0.5%

Exceeding Rs. 10,00,000/- Lower of Rs. 5000 + GCE x 0.1%

or Rs.60,000

Conditions:

I. Option is available for every financial year.

II. Option once exercised can’t be withdrawn during the remaining part of the FY.

Booking of tickets for air travel by an air travel agent

1. Domestic booking

Value of Service = Basic Fare x 5%

2. International booking

Value of Service = Basic Fare x 10%

Value of supply of services in relation to life insurance business

1. In case policy include investment / saving component

Value of Service = (Gross premium charged – Amount allocated for investment, or savings)

Condition:

I. Such amount of investment/ saving is intimated to the policy holder at the time of supply of service

2. In case of single premium annuity policies (other than 1 above)

Value of Service = Single premium charged x 10%

3. Where policy has benefit of risk coverage only

Value of Service = Entire premium charged

4. In all other cases

I. For the first year of policy

Value of Service = Premium Charges x 25%

II. For subsequent years

Value of Service = Premium Charges x 12.5%

Value of supply of Second hand goods

Value of supply = Selling price – Purchase price

If value of such supply is negative it shall be ignored.

Conditions:

I. Business of person should be buying and selling of second hand goods.

II. No input tax credit has been availed on purchase of such goods.

Value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or services or both

Value of supply = Money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.

Rate of exchange of currency, other than Indian rupees, for determination of value

The rate of exchange for determination of value of taxable goods or services or both shall be the applicable reference rate for that currency as determined by the Reserve Bank of India on the date when point of taxation arises in respect of such supply in terms of section 12 or, as the case may be, section 13 of the Act.

This article was first published on LinkedIn by Bineet Sundriyal

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