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Determination of value for certain businesses

Recently introduced GST valuation rules have laid down various scenarios for day-to-day transactions when a businessman may be required to refer to these rules. In our previous article, we had discussed valuation rule on the basis of cost method and residual method.

Apart from this, there are certain businesses which have been notified for which a separate valuation method will be applicable. Here, we will discuss these businesses and the value of supplies from such businesses. These shall be determined in the manner provided below.

Purchase or Sale of Foreign Currency, Including Money Changing

The value of supply of services when purchasing or selling foreign currency, including money changing, shall be determined by the supplier of service in the following manner:-

1. For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI) reference rate for that currency at that time, multiplied by the total units of currency.

For example, on 20th July 2017, Mr. A converted USD 100 into INR 6,200 (INR 62 per USD) through Akbar Travel Group. RBI’s reference rate for buying and selling was Rs. 61/61.5 respectively on such date. Now the value of supply will be:  (62-61)*100 = INR 100

Thus the value of supply for Akbar Travel will be INR 100 and GST will be levied on this amount.

In cases where the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received by the person changing the money.

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

2. If neither of the currencies exchanged is Indian Rupee, the value shall be equal to 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 on that day at the reference rate provided by RBI.

For example, let’s assume that USD is converted against EURO. Now as per the above rule, both these currencies will be converted into INR terms and the value of supply will be 1% of the lesser amount.

Also at the option of the supplier of services, the value in relation to a supply of foreign currency, including money changing, shall be deemed to be:

(i) one per cent. of the gross amount of currency exchanged for an amount up to one lakh rupees, subject to a minimum amount of two hundred and fifty rupees;

(ii) one thousand rupees and half of a per cent. of the gross amount of currency exchanged for an amount exceeding one lakh rupees and up to ten lakh rupees; and

(iii) five thousand rupees and one-tenth of a percent of the gross amount of currency exchanged for an amount exceeding ten lakh rupees, subject to maximum amount of sixty thousand rupees

However, once opted, this option cannot be withdrawn during the remainder of the financial year.

Services in relation to booking of tickets for travel by air provided 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 deemed to be an amount calculated at the rate of five percent of the basic fare in the case of domestic bookings, and at the rate of ten percent of the basic fare in the case of international bookings of passage for travel by air.

Note: For this rule, the expression “basic fare” means that part of the airfare on which commission is normally paid to the air travel agent by the airline.

Life insurance business

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

(a) the gross premium charged from a policyholder reduced by the amount allocated for investment, or savings on behalf of the policyholder, if such amount is intimated to the policyholder at the time of supply of service;

Example: If Rs. 50,000 is gross premium, of which Rs. 45,000 is invested in funds, then the value of supply shall be Rs. 5,000.

(b) in the case of single premium annuity policies other than (a), ten percent of single premium charged from the policyholder; or

(c) in all other cases, twenty-five percent of the premium charged from the policyholder in the first year and twelve and a half percent of the premium charged from policyholder in subsequent years

This rule will not be applicable if the entire premium paid by the policyholder is only towards the risk cover in life insurance.

Valuation of Supply when buying and selling of second-hand goods

Where a taxable supply is provided by a person dealing in buying and selling of second-hand goods i.e. used goods, or goods which have undergone minor processing which does not change their nature, and where no input tax credit has been availed on purchase of such goods, the value of supply shall be the difference between the selling price and purchase price and where the value of such supply is negative it shall be ignored.

This also includes buying and selling on online platforms such as OLX and Quikr.

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

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.

Example: If Rs. 1,500 worth of Sodexo is supplied by the taxable person, the value of supply under GST law will also be Rs. 1,500 .

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