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Valuation Rule For Supply Under Goods and Services Tax

Updated on: Jun 29th, 2021

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4 min read

What is Valuation of Supply Under GST?

Goods and Services Tax will be charged on the value of supply made. The new law has provided various rules which can be referred to for determining the value of supply on which GST has to be charged. In simple words, these rules will help in determining the charging value for GST.

Analysis of Valuation Rules for Supply

Valuation Rules have recently been released and are now open for public comment. These rules are currently hosted on CBEC’s portal and you can access them here. These rules are going to impact all the businesses. To make it easier for our readers, we have come up with our analysis of these valuation rules. All possible scenario wherein valuation is required are categorized under seven different heads. These heads are:

1. Value of Supply of Goods or Services where the consideration is not wholly in money.
Example will include cases when a buyer gives another good in exchange of partial consideration and barter.

2. Value of Supply of Goods or Services or both between distinct or related persons, other than through agent.
Example will include when goods or services are supplied to related persons or entities which have separate registration but common control.

3. Value of Supply of Goods made or received through an agent.
Specific cases when goods or services are supplied between Principal and his agent. There may not be a value-addition but these cases will fall under the definition of supply.

4.  Value of Supply of Goods or Services or both based on cost.
This valuation method provides valuation on the basis of the cost of manufacture or cost of acquisition.

5.  Residual method for determination of the value of supply of goods or services or both.
Any other method which can be fairly justified.

6. Determination of value in respect of certain supplies.
Specific cases such as Foreign Currency Convertor, Life Insurance Business are covered under this head.

7. Value of Supply of Service in the case of a pure agent.
This valuation rule will apply to exclusive Principal-Agent related cases.

Most of these valuation rules are case specific, the all powerful GST council has also listed up certain businesses such as the sale of foreign currency and life insurance business etc and their specific valuation rules (Under clause 6 above). We will publish a series of articles and cover all the valuation rules as comprehensively as possible.

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Quick Summary

Valuation of supply under GST is determined based on various rules introduced in the new law. These rules cover scenarios such as exchanges not involving money, transactions among related parties, agency transactions, cost-based valuation, residual valuation methods, specific cases like foreign currency conversion, life insurance, and more.

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