Valuation of Supply under GST

value of supply gstGoods and service tax or GST will be one tax to subsume all taxes. It will bring in “One nation one tax” regime. 

Being a completely new form of indirect taxation there are many questions in the minds of the organizations. One of the most important question is what is valuation of supply under GST? What will be included in the value of taxable supply on which GST is calculated?

Current regime

Currently taxes are calculated on the value of goods/services-

TaxValue of goods/services
ExciseTransaction value of goods or MRP
VATSale Value
Service taxTaxable value of service rendered

Valuation of supply under GST 

GST will be charged on the ‘transaction value’. Transaction value is the price actually paid (or payable) for the supply of goods/services between un-related parties (i.e., price is the sole consideration)

The value of supply under GST shall include:

  1. Any taxes, duties, cess, fees and charges levied under any act, except GST. GST Compensation Cess will be excluded if charged separately by the supplier.
  2. Any amount that the supplier is liable to pay which has been incurred by the recipient and is not included in the price.
  3. The value will include all incidental expenses in relation to sale such as packing, commission etc.
  4. Subsidies linked to supply, except Government subsidies will be included.
  5. Interest/late fee/penalty for delayed payment of consideration will be included.

Example

Let us consider an example of ABC, a manufacturer, selling tools and valuation of supply under gsthardwares like drills, polishers, spades etc. It sells a power drill to XYZ a wholesaler. The MRP is Rs. 5,500 but ABC sells it for Rs. 3,000.

Currently, the invoice will look like-

Power Drill 3,000
Add: Excise @ 12.5% 375
Subtotal 3,375
Add: VAT @14.5% (on subtotal) 490
Total 3,865

Value of supply under GST

The value of goods &/or services supplied is the transaction value, i.e. the price paid/payable, which is Rs 3,000 in the example. Assuming CGST=9% and SGST= 9%

Power Drill 3,000
Add: CGST @9% 270
Add: SGST @9% 270
Total 3,540

Discounts
Discounts will be treated differently under GST.
Discounts given before or at the time of supply will be allowed as deduction from transaction value. Discounts given after supply will be allowed only if certain conditions are satisfied.

Please read part II of this article which deals with discounts and impact of GST along with examples.

NOTE: The revised law is silent on Valuation Rules which were actually part of earlier June 2016 version of GST Law.

 

We also have articles on Time of supply of goods and services.
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