Goods 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 questions is what is valuation of supply under GST? What will be included in the value of taxable supply on which GST is calculated?
Currently, taxes are calculated on the value of goods/services-
|Tax||Value of goods/services|
|Excise||Transaction value of goods or MRP|
|Service tax||Taxable 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:
- 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.
- Any amount that the supplier is liable to pay which has been incurred by the recipient and is not included in the price.
- The value will include all incidental expenses in relation to sale such as packing, commission etc.
- Subsidies linked to supply, except Government subsidies will be included.
- Interest/late fee/penalty for delayed payment of consideration will be included.
Let us consider an example of ABC, a manufacturer, selling tools and hardware 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-
|Add: Excise @ 12.5%||375|
|Add: VAT @14.5% (on subtotal)||490|
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%
|Add: CGST @9%||270|
|Add: SGST @9%||270|
Discounts will be treated differently under GST.Discounts given before or at the time of supply will be allowed as a 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.
Valuation of supply when a transaction is not in INR.
When exports are made the invoice may be raised by the taxpayer in Foreign Currency. The IGST (if any) charged in the invoice will be converted using RBI Exchange Rate. The exchange rates are available on the RBI Website.
RBI exchange rates are to be used in case of imports too. When reverse charge is applicable on imported supplies the invoice amount has to be converted using the RBI Exchange Rate.