VALUATION IN GST

Valuation in GST

What is Taxable Value:

Under GST, the taxable value is the transaction value, that is the price actually paid or payable, provided the supplier & the recipient are not related and price is the sole consideration. In most of the cases of regular normal trade, invoice value will be the taxable value. However, to determine value of certain specific transactions, Determination of Value of Supply rules have been prescribed in CGST Rules, 2017.

What are included in Transaction Value:

The following values are included in the transaction value for determining the tax liability:

  • Any taxes, fees, charges levied under any law other than GST law;

  • Expenses incurred by the recipient on behalf of the supplier;

  • Incidental expenses like commission & packing incurred by the supplier and

  • Interest or late fees or penalty for delayed payment and direct subsidies (except government subsidies).

What are excluded in Transaction Value:

Discounts like trade discount, quantity discount etc. are part of the normal trade and commerce, therefore pre-supply discounts i.e. discounts recorded in the invoice have been allowed to be excluded while determining the taxable value.

Discounts provided after the supply can also be excluded while determining the taxable value provided two conditions are met, namely:

  • (a) discount is established in terms of a pre supply agreement between the supplier & the recipient and such discount is linked to relevant invoices and

  • (b) input tax credit attributable to the discounts is reversed by the recipient.

Taxable value when consideration is not solely in money:

In some cases, where consideration for a supply is not solely in money, taxable value has to be determined as - prescribed in the rules. In such cases following values have to be taken sequentially to determine the taxable value:

  • Open Market Value of such supply

  • Total money value of the supply i.e. monetary consideration plus money value of the non-monetary consideration.

  • Value of supply of like kind and quality.

  • Value of supply based on cost i.e. cost of supply plus 10% mark-up.

  • Value of supply determined by using reasonable means consistent with principles & general provisions of GST law. (Best Judgement method).

Wht is Open Market Value:

The full value in money excluding taxes under GST laws, payable by a person to obtain such supply at the time when supply being valued is made, provided such supply is between unrelated persons and price is the sole consideration for such supply.

Example:

Where a new phone is supplied for Rs. 20000/- along with the exchange of an old phone and if the price of the new phone without exchange is Rs.24000/-, the open market value of the new phone is Rs 24000/-.

Where a laptop is supplied for Rs. 40000/- along with a barter of printer that is manufactured by the recipient and the value of the printer known at the time of supply is Rs. 4000/- but the open market value of the laptop is not known, the value of the supply of laptop is Rs. 44000/-.

Wht is Supply of like kind & quality:

Any other supply made under similar circumstances that is same or closely resembles in respect of characteristics, quality, quantity, functionality, reputation to the supply being valued.

Value of supply between distinct and related persons (excluding Agents):

A person who is under influence of another person is called a related person like members of the same family or subsidiaries of a group company etc. Under GST law various categories of related persons have been specified and as relation may influence the price between two related persons therefore special valuation rule has been framed to arrive at the taxable value of transactions between related persons. In such cases following values have to be taken sequentially to determine the taxable value:

  • Open Market Value of such supply

  • Value of supply of like kind and quality.

  • Value of supply based on cost i.e. cost of supply plus 10% mark-up.

  • Value of supply determined by using reasonable means consistent with principles & general provisions of GST law. (Best Judgement method).

If the recipient is eligible for full input tax credit, the invoice value will be deemed to be the open market value. It has also been provided that where the goods being supplied are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to 90% of the price charged for the supply of goods of like kind and quality by the recipient to his unrelated customer.

Value of supply of goods made or received through an agent:

Open market value of goods being supplied, 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.

Example:

Where a principal supplies groundnut to his agent and the agent is supplying groundnuts of like kind and quality in subsequent supplies at a price of Rs. 5000/- per quintal on the day of supply. Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the price of Rs. 4550/- per quintal. The value of the supply made by the principal shall be Rs. 4550/- per quintal or where he exercises the option the value shall be 90% of the Rs. 5000/- i.e. is Rs. 4500/- per quintal.

If the value is not determined as per Open market value of goods being supplied, 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, then following values have to be taken sequentially to determine the taxable value:

  • Value of supply based on cost i.e. cost of supply plus 10% mark-up.

  • Value of supply determined by using reasonable means consistent with principles & general provisions of GST law. (Best Judgement method).

Value of supply of services in case of a Pure Agent:

Subject to fulfilment of certain conditions, the expenditure and costs incurred by the supplier as a pure agent of the recipient of supply of service has to be excluded from the value of supply.

Example:

  • CompaniesHouse is engaged to handle the legal work pertaining to the incorporation of Company XYZ PRIVATE LIMITED.

  • Other than its service fees, CompaniesHouse also recovers from XYZ PRIVATE LIMITED, registration fee and approval fee for the name of the company paid to Registrar of the Companies.

  • The fees charged by the Registrar of the companies, registration and approval of the name are compulsorily levied on XYZ PRIVATE LIMITED.

  • CompaniesHouse is merely acting as a pure agent in the payment of those fees.

  • Therefore, CompaniesHouse’s recovery of such expenses is a reimbursement and not part of the value of supply made by CompaniesHouse to XYZ PRIVATE LIMITED.

Foreign Currency including Money Changing:

Transaction where one of the currencies exchanged is Indian Rupees:

Taxable value is difference between buying rate or selling rate of currency and RBI reference rate for that currency at the time of exchange multiplied by total units of foreign currency. However if RBI reference rate for a currency is not available then taxable value is 1% of the gross amount of Indian Rupees provided/received by the person changing the money.

Transaction where neither of the currencies exchanged is Indian Rupees:

Taxable value will be 1% of the lesser of the two amounts the person changing the money would have received by converting (at RBI reference rate) any of the two currencies in Indian Rupees.

The person supplying the service may also exercise the following option to ascertain the taxable value, however once opted then he cannot withdraw the during the remaining part of the financial year:

  • One percent of the gross amount of currency exchanged for an amount up to one lakh rupees, subject to minimum amount of two hundred and fifty rupees.

  • One thousand rupees and half of a percent of the gross amount of currency exchanged for an amount exceeding one lakh rupees and up to ten lakh rupees.

  • Five thousand rupees and one tenth of a percent of the gross amount of currency exchanged for an amount exceeding ten lakhs rupees subject to a maximum amount of sixty thousand rupees.

booking of tickets for air travel by an air travel agent:

Taxable value is 5% of basic fare in case of domestic travel and 10% of basic fare in case of international travel. Basic fare means that part of the air fare on which commission is normally paid to the air travel agent by the airline.

The expression ‘basic fare’ means that part of the air fare on which commission is normally paid to the air travel agent by the airlines.

life insurance business:

Taxable value varies with nature of insurance policy. The details are as follows:

  • Where policy has dual benefits of risk coverage and investment: Taxable value is gross premium charged less amount allocated for investments or savings if such allocation is intimated to the policy holder at the time of collection of premium.

  • Single premium annuity policy where allocation for investments and savings is not intimated to the policy holder: taxable value is ten percent of the single premium charged from the policy holder.

  • Other cases: Twenty five percent of premium charged from the policy holder in the first year and twelve and a half percent of premium charged for subsequent years.

  • Where insurance policy has benefit of risk coverage only: then taxable value is entire premium charged from the policy holder.

Second hand goods:

The taxable value of supply of second hand goods i.e. used goods as such or after such minor processing which does not change the nature of goods shall be the difference between the purchase price and the selling price, provided no input tax credit has been availed on purchase of such goods. However, if the selling price is less than purchase price, that negative value will be ignored.

Persons who purchase second hand goods after payment of tax to supplier of such goods will be governed by this valuation rule only when they do not avail input tax credit on such input supply. If input tax credit is availed, then such supply will be governed by normal GST valuation.

Defaulting Borrower:

If the defaulting borrower is not a registered person, the purchase value will be purchase price in the hands of such borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and date of disposal by the person making such repossession.

If the defaulting borrower is registered, the repossessing lender agency will discharge GST at the supply value without any reduction from actual/notional purchase value.

Redeemable vouchers/stamps/coupons/tokens:

The 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 shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.

Works Contract Services:

Valuation of a works contract service is dependent upon whether the contract includes transfer of property in land as a part of the works contract.

In case of supply of service, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply.

Supply of lottery:

Value of supply of lottery shall be 100/112 of the face value or the price notified in the Official Gazette by the organising State, whichever is higher, in case of lottery run by State Government and 100/128 of the face value or the price notified in the Official Gazette by the organising State, whichever is higher, in case of lottery authorised by State Government.

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 RBI reference rate for that currency on the date of time of supply as determined in terms of section 12 or section 13 of the CGST Act.

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