How to Calculate Value of Supply in GST?

Which section describe the value of supply?

Section 15 of CGST Act, 2017 provides the provisions for determining the value of goods and services. It provides the mechanism to know how to calculate the value of goods or services when the supply of goods and services is made between unrelated persons and when the price is the sole consideration of the supply. Provisions of the value of supply under the CGST act have also been made applicable to the IGST Act vide Section 20 of the IGST Act.

The government has introduced various criteria for the determination of the value of supply, so now we will understand how to calculate the value of supply as per Section 15 of the CGST Act, 2017.

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Value of taxable supply as per section 15 Under GST

Provisions relating to value of taxable supply are as under-

As per this section value of taxable supply is transaction value, which is the price actually paid or payable for the supply of goods or services, and the price is the sole consideration. Also, the supplier and the recipient are not related or unrelated parties.

So we can say that if the supplier and recipient are not related and the price is the sole consideration, then the value of taxable supply is the Transaction Value.

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Inclusions in the Value of Supply

There are certain elements which are required to be included in the value of taxable supply. We will understand all the elements step by step as under -

Taxes, duties, cesses, fees and Charges

The value of supply includes all taxes, duties, cesses, fees, and charges, except for separate charges for CGST, SGST, UTGST, and GST cess made by the provider. Therefore, while other taxes, duties, cesses, fees, and charges are part of the taxable value, GST and GST cess are excluded.

Amount incurred by recipient on behalf of supplier

Any amount paid by the recipient in relation to supply which is liable to be paid by the supplier then such amount will become part of the taxable value. A supplier may need to incur some expenses in relation to supply however if these expenses are directly paid by the recipient then such expenses also needs to be included in the value of taxable supply.

Incidental expenses and amount charged for pre-delivery activities

This refers to any amount the provider charges for work related to the supply of goods, services, or both. Incidental costs included in the value of a taxable supply are as follows:

• Commission: Any commission reimbursed to an agent by the supplier and charged to the recipient for providing goods or services contributes to the taxable supply's value.
• Fees: Additional fees for certificates or inspections may also increase the taxable value if they are invoiced to the recipient.
• Packaging Costs: If the supplier charges the recipient for packaging, this cost must be deducted from the supply's value.
• Freight Charges: If the supplier agrees to deliver the goods and arrange transportation, the freight charges will also be deducted from the supply's value.

Delayed payment charges

The value of the supply must include any interest, late fees, and penalties incurred due to delays in payment for the consideration received in exchange for goods or services.

Subsidies

Any subsidy directly related to the supply will be included in the supply's value, except for subsidies provided by the federal and state governments.

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Exclusions in the Value of supply

There are two types of discounts that must be excluded from the value of supply.

Discounts details are given as under:-

Discount given on or before supply :- Any discount which is duly recorded in the invoice and given before the time of supply is required to be excluded from the value of taxable supply.

Discount given after the supply (Post supply discount):-Any discount which is given after the supply however such discount is already decided as per the agreement between supplier and the recipient before the time of supply and recipient has reversed the input tax credit on the value of discount then such discount value is required to be excluded from the value of taxable supply.

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Value cannot be determined as per the provisions

When it is not possible to calculate value of supply as per section 15 due to related party transaction or price not being the only or the sole consideration. The value of taxable supply is to be calculated as per the chapter IV of CGST Rules, 2017.

Now we will understand the value of supply as per rules.

Value of taxable supply where the consideration is not wholly in money (Rule 27)

Where the consideration is not wholly in money then the value of supply is

• Open market value
• If the open market value is not available then the sum total of consideration in money and any further amount in money as is equivalent to the consideration not in money.
• If the value of supply is not determinable as per the above points, then the value of supply of goods or services of like kind and quality
• If the value of supply is not determinable as per the above points then the value of the supply of goods or services will be calculated as per rule 30 that means the consideration in money plus money equivalent of the non-money consideration plus 10% markup or
• As per rule 31, other reasonable methods.

Value of taxable supply where supply between distinct or related persons other than agent ( Rule 28)

The value of taxable supply between distinct persons or where the recipient and supplier are related other than in case of supply being made through agent then value is

• Open market value
• If the open market value is not available then the value of supply of goods or services of like kind and quality
• If the value of supply is not determinable as per above points then the value of supply of goods or services will be calculated as per rules 30 or 31

However if the goods are as such supplied by the recipient then the supplier has an option to take 90% of the price charged by the recipient from his unrelated customers as value of goods

Value of taxable supply where supply made through an agent (Rule 29)

Where supply is made through an agent then value of supply is

• Open market value of goods
• Or supplier has an option to take 90% of the price charged for the supply of goods of like kind and quality by the recipient from his unrelated customers as value of goods.
• If the value of supply is not determinable as per above points then the value of supply of goods or services will be calculated as per rules 30 or 31

Value of supply as per rule 30

Where value of taxable supply is not determinable as per rules 27,28,29 than it will be calculated as per Rule 30. As per this rule the value shall be 110% of the

• Cost of production
• Cost of acquisition
• Cost of provision of such service

However service provider has an option to take rule 31 by passing rule 30.

Value of supply as per rule 31

Where the value of supply of goods or services or both cannot be determinable as per Rule 27 to 30 then the same shall be determined as per reasonable means with the principles and general provisions of the section 15 and the provisions of the chapters.

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