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Valuation Rule Under GST – Specific Businesses

Updated on: Jun 22nd, 2021


3 min read

Normally, GST requires computation of tax on ad-valorem basis – tax being computed as a percentage of the value of supply of goods and services. In most of the cases, the invoice value will be the taxable value.

In respect of the following 5 specific businesses, the GST rules prescribe different rules for valuation. However, these valuation methods are optional. The supplier may, at his option, opt for valuation based on the normal valuation rules as well.

Transactions involving buying or selling of Foreign Currency

Method 1

Case 1: Where one of the value exchanged is Indian Rupees 

The value of supply is the difference between, buying or selling rate of Currency and RBI reference rate for that currency at the time of the exchange, multiplied by the number of units of the currency. 

For example, on 20th September 2018, Mr. A converted USD 100 into INR 6,500 (INR 65 per USD). RBI’s reference rate at the time of exchange was Rs. 64. 

Now the value of supply will be:  (65-64)*100 = INR 100. GST will be levied on INR 100. 

If the RBI reference rate for a currency is not available the value shall be 1% of the gross amount of INR provided or received by the person who is changing the money. 

In above example, if the RBI reference rate is not available then 1% of INR 6,200 i.e INR 62 will be the value of supply of service and GST will be levied on INR 62. 

Case 2: Where neither of the currencies exchanged is Indian Rupee

Let’s assume that USD 9000 is converted into 4500 POUNDS. RBI reference rate at that time for USD is INR 63 per dollar, and INR 82 per  POUND.

In this case, neither of the currencies exchanged is Indian Rupee. The value of supply is determined as 1% of the least amount on converting to INR. That is, 1.

US Dollar converted into Indian Rupees = 9000$ * ₹63 = ₹5,67,000
UK Pound converted into Indian Rupees = £4500 * ₹82 = ₹3,69,000
Value of taxable service = 1% * 3,69,000 = ₹3,690/-

Method 2 

This method may also be adopted, however, it cannot be changed in the remaining part of the financial year

Sl NoCurrency exchangedValue of Supply
1Upto ₹1,00,0001% of the Gross Amount of currency exchanged OR ₹250, whichever is higher
2Exceeding ₹1,00,000 and upto ₹10,00,000₹1,000 + 0.50% of the (gross amount of currency exchanged – ₹1,00,000)
3Exceeding ₹10,00,0005000 + 0.1% of the (gross amount of currency exchanged – ₹10,00,000)

Example – Mr. A, has exchanged US $ 10,000 to INR @ ₹64 per US $ The value of supply based on the second method will be determined as follows: Value of currency exchanged= ₹64* $10,000 = ₹6,40,000 Upto ₹1,00,000 =₹ 1,000 For ₹5,40,000 =  ₹ 2,700   (0.50% * ₹5,40,000)
Value of supply =₹ 3,700

Service performed by an air travel agent.

The value of supply of services in relation to booking of tickets for travel by air provided by an air travel agent such as Yatra or MakeMyTrip, shall be calculated as follows: 
1. Domestic travel : 5% of the Basic fare 
2. International travel : 10% of the basic fare. 

Note: Basic fare” means the value of airfare on which commission is normally paid to the air travel agent by the airline. 

Eg: Mr. A is a travel agent. The following particulars are furnished by him.

ParticularsBasic FareOther charges and feeTaxesTotal Ticket Value
Domestic bookings₹1,00,000₹5,000₹4,000₹1,09,000
International bookings₹3,00,000₹20,000₹15,000₹3,35,000

Basic fare :
Domestic bookings = ₹1,00,000 
Value of Supply = 5% * 1,00,000 = ₹5,000 

Basic fare:
International bookings = ₹3,00,000 
Value of Supply = 10% * 3,00,000 = ₹30,000 

Total Value of Supply = ₹5,000 + ₹30,000 = ₹35,000

Life insurance business

The value of supply of services in relation to life insurance business shall be computed as follows: 

(a) Policy with benefits of Risk Coverage and Investment Taxable Value = Gross premium – Amount allocated for investment, or savings on behalf of the policyholder, if such amount is intimated to the policyholder at the time of collection of premium; 

Example: If the gross premium is Rs.60,000, of which Rs. 55,000 is invested in funds, then the value of supply shall be Rs. 5,000. 

(b) Single premium annuity policies Taxable Value = 10% of single premium charged from the policyholder; where allocation for investment/ savings is not intimated to the policy holder 

(c) Other casesTaxable Value = 25 % of the premium charged from the policyholder in the first year and 12.5% of the premium charged from policyholder in subsequent years In case of policies with only risk cover, the taxable value shall be the entire premium charged from the policy holder.

Valuation of Supply when second-hand goods are bought or sold

Where a person who is dealing in buying and selling of used goods, or goods subject to minor processing but which does not change its nature,the taxable value shall be computed as follows: 

When ITC is not availed 

  • Value = Selling Price – Purchase Price
  • If Selling Price is less than the Purchase Price, ignore the negative value
  • In case of second-hand goods from unregistered suppliers, CGST will be exempt
    Eg: A company dealing in buying and selling of second-hand goods, purchases a second hand Maruti 800, 2012 make ( Original price: ₹2 lakhs) for ₹1 lakh and after minor repairs, resell the same for ₹1,23,000.  The taxable value for supply shall be ₹ 23,000.

When ITC is availed 

The taxable value will be determined based on the Normal Valuation method. This also includes buying and selling on OLX, Quikr and the like.

Value of token, voucher, a coupon, or a stamp (other than the postage stamp)

The value of such token, coupon, voucher or stamp shall be the monetary value of such goods or service. Example: If a Sodexo is worth Rs.1500, and the customer exchanges the coupon for goods worth Rs.1500, the value of supply under GST law will also be Rs. 1,500

Value of supply between distinct persons

The value of taxable services transacted between distinct persons where input tax credit is available shall be NIL. Distinct persons are those persons who are required to obtain more than 1 GST registration as obtained or is required to obtain more than one registration. They, in spite of having a single PAN will be required to have more than one GSTIN. 

Example – Mr. Ram based in Bangalore has 2 branches of his business, in Delhi and Bangalore. The establishment in Banglore will require GSTIN different from that of the one in Delhi. If the Bangalore branch supplies consultancy services to the Delhi branch, and ITC has been availed on Telephone charges, office rent and internet bill, then the value to taxable supply for such service will be NIL, since the ITC is available in this case.

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Quick Summary

GST rules prescribe different optional valuation methods for specific businesses like foreign currency exchange, air travel bookings, life insurance policies, second-hand goods, and vouchers. The valuation can be determined based on factors like currency exchange rates, basic fare of travel tickets, and premium amounts for insurance policies.

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