Value of Taxable Supply means the value on which GST tax is calculated by multiplying tax rate with such value. This value commonly known as ‘Taxable Value’ i.e. the value on which GST is collected. It may be actual transaction price or being influenced by one or more factors as prescribed under GST laws. In this article, we will discuss the law and such factors which impact Taxable value of supplies.
Section 15 of CGST Act 2017 deals with ‘Value of Taxable Supply of goods or services or both’.
As per sub- section (1), the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
As per this section: Value of supply shall be transaction value of goods or services, only when:-
- Supplier and recipient of the supply are not related; and
- Price actually paid or payable for the supply is the sole consideration for the supply.
What are the various factors which impact Taxable value
Additions for Taxable Value
Sub Section (2) Section 15 provides various factors which are required to be added before arriving at Taxable Value and calculating tax. These are compulsory/mandatory in nature and are reproduced below:-
(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than CGST Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;
Clarification on TCS collected under Income Tax
In this regard, one of question was clarified by CBIC through Corrigendum to Circular no. 76/50/2018-GST dated 07.03.2019. The question and its answer reproduced below:-
What is the correct valuation methodology for ascertainment of GST on Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961?
Section 15(2) of CGST Act specifies that the value of supply shall include “any taxes, duties cesses, fees and charges levied under any law for the time being in force other than this Act, the SGST Act, the UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier.”
For the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.
(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;
(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services; e.g. Freight Charges, Warranty Charges, AMC, etc.
(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and
(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.
Explanation.––For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.
Deductions allowed for Taxable Value
Sub-Section (3) Section 15 of CGST Act provides factors which may be deducted before arriving at Taxable Value and calculating tax. These are optional in nature and are reproduced below:-
Any discount which is given–
(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and/or
(b) after the supply has been effected, if—
(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.
What will be value of supply if Supplier and recipient of the supply are related
Rule 28 of CGST Rules 2017 prescribes the method of calculation of Taxable value in this situation. Followings are the provisions for transactions between related persons except transactions between Principal and Agent.
Value of Supply of Goods:-
In case, there is supply of goods between related persons; and in case recipient of Goods is a registered person under GST and he is also eligible to claim Full Input Tax Credits on such inward supply, the value declared in the invoice shall be deemed to be the taxable value of the goods.
However, if the recipient is not eligible to claim Full Input Tax Credits on such transaction, but the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person.
However, where supplier don’t want to opt for above-said option or such supplies received by recipient neither “intended for further supply as such” nor “such inward supplies are eligible for Full Input Tax Credits in the hands of recipient”, following will be the value of supply :-
(a) the open market value of such supply;
(b) if the open market value is not available, the value of supply of goods of like kind and quality;
(c) if the value is not determinable under clause (a) or (b), the value as determined by the application of rule 30 or rule 31, in that order.
Value of Supply of Services:-
In case, there is supply of services between related persons; and in case recipient of services is a registered person under GST; and he is also eligible to claim Full Input Tax Credits on such inward supply, the value declared in the invoice shall be deemed to be the taxable value of the services.
However, where such inward supplies are not eligible for Full Input Tax Credits in the hands of recipient, following will be the value of supply :-
(a) the open market value of such supply;
(b) if the open market value is not available, the value of supply of services of like kind and quality;
(c) if the value is not determinable under clause (a) or (b), the value as determined by the application of rule 30 or rule 31, in that order.
Rule 30 provides that Taxable Value of supply of goods or services or both to be calculated based on cost. As per this rule, the value shall be one hundred and ten percent (110%) of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provision of such services.
Rule 31 is a Residual method for determination of value of supply of goods or services or both. Where the value of supply of goods or services or both cannot be determined under rules 28 or 30, the same shall be determined using reasonable means consistent with the principles and the general provisions of section 15 and the provisions of this Chapter. However, in the case of supply of services, the supplier may opt for this rule, ignoring rule 30.
Who are the persons being considered as related persons under section 15
As per Explanation to Section 15, following persons shall be deemed to be “related persons” if:-
(i) such persons are officers or directors of one another’s businesses;
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;
The term “person” also includes legal persons;
Further, persons who are associated in the business of one another in the manner that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.
What will be Value of supply of goods or services where the consideration is not wholly in money
Rule 27 of CGST Rules provide that Where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall:-
(a) be the open market value of such supply;
(b) if the open market value is not available under clause (a), be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply;
(c) if the value of supply is not determinable under clause (a) or clause (b), be the value of supply of goods or services or both of like kind and quality;
(d) if the value is not determinable under clause (a) or clause (b) or clause (c), be the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by the application of rule 30 or rule 31 in that order.
Illustration:
(1) Where a new phone is supplied for twenty thousand rupees along with the exchange of an old phone and if the price of the new phone without exchange is twenty four thousand rupees, the open market value of the new phone is twenty four thousand rupees.
(2) Where a laptop is supplied for forty thousand rupees along with the barter of a printer that is manufactured by the recipient and the value of the printer known at the time of supply is four thousand rupees but the open market value of the laptop is not known, the value of the supply of the laptop is forty four thousand rupees.
Explanations:-
(a) open market value of a supply of goods or services or both means the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain such supply at the same time when the supply being valued is made;
(b) supply of goods or services or both of like kind and quality means any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and the reputation of the goods or services or both first mentioned, is the same as, or closely or substantially resembles, that supply of goods or services or both.
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