Value of Supply: formula sheet

Key formulas

Transaction value (Section 15(1))

Value of supply = price actually paid or payable, if (a) supplier and recipient are not related AND (b) price is the sole consideration

Both conditions must be met together. If either fails, Section 15(4) applies and value is determined as prescribed.

Value after adjustments (Section 15(2) and (3))

Value = price paid or payable + Section 15(2) inclusions − eligible Section 15(3) discounts

Inclusions are other-law taxes charged separately, supplier's liabilities borne by the recipient, incidental expenses, interest/late fee/penalty, and subsidies linked to price (other than Central or State Government subsidies).

Related persons (Explanation to Section 15)

Related if: officers or directors of one another's businesses; legally recognised partners; employer and employee; 25% or more voting stock held by one person in both; one controls the other; both controlled by a third; together control a third; same family

Sole agent, sole distributor or sole concessionaire of the other are also deemed related. 'Person' includes legal persons.

Fallback rules

Section 15(4): value not determinable under 15(1) → determined as prescribed. Section 15(5): notified supplies → determined as prescribed

Do not invent a method in the exam. Say that the prescribed valuation rules apply.

Transaction value

Value of supply = price actually paid or payable (unrelated parties, price sole consideration)

Section 15(1). This is the base to which inclusions are added.

Value after inclusions

Value = transaction value + Section 15(2) inclusions − eligible discounts under Section 15(3)

Use the exact heads in clauses (a) to (e). GST charged under the CGST, SGST, UTGST or Compensation Acts is not added.

Other-law taxes (clause a)

Include taxes, duties, cesses, fees and charges under other laws, if charged separately by the supplier

Excludes CGST, SGST, UTGST and GST (Compensation to States) Act levies.

Recipient-borne liability (clause b)

Include amount supplier is liable to pay, incurred by recipient, not already in price

Avoid double counting if it is already in the price.

Incidental expenses (clause c)

Include commission, packing and other charges for acts done at or before delivery or supply

Charged by the supplier to the recipient.

Delayed payment charges (clause d)

Include interest, late fee or penalty for delayed payment of any consideration

Time of supply for this addition is when the supplier receives it (Sections 12(6) and 13(6)).

Subsidy (clause e)

Include subsidy directly linked to price, except Central or State Government subsidy

Included in the value of the supplier who receives it.

Value after discount excluded

Value of supply = Price before discount − eligible discount

Only a discount meeting section 15(3) is deducted. Otherwise tax applies on the full price.

Discount at or before supply

Excluded if: given before or at the time of supply AND duly recorded in the invoice

Section 15(3)(a). Both parts must be satisfied.

Post-supply discount

Excluded if: (i) agreement at or before supply, specifically linked to relevant invoices AND (ii) recipient has reversed attributable ITC

Section 15(3)(b). Both sub-conditions are needed.

ITC to reverse

ITC reversed = GST on the discount amount (at the rate of the original supply)

Based on the supplier's document, usually a credit note.

Credit note time limit

Declare in the return for the month of issue, not later than 30 November following the financial year of supply or the annual return date, whichever is earlier

Section 34(2).

Transaction value (section 15(1))

Value = price actually paid or payable, if supplier and recipient are not related AND price is the sole consideration

If either condition fails, apply the valuation rules.

Related persons (Explanation to section 15)

Related if: officers or directors of one another's businesses; legally recognised partners; employer and employee; one person holds 25% or more of voting stock or shares of both; one controls the other; both controlled by a third person; together they control a third person; members of the same family. Sole agent, sole distributor or sole concessionaire is deemed related.

The 25% test is 'twenty-five per cent. or more'. The Explanation says 'directly or indirectly'.

Rule 27: consideration not wholly in money

1) Open market value of the supply; 2) if not available, money value of the consideration plus any further amount in money; 3) if not determinable, value of supply of like kind and quality; 4) then Rule 30, then Rule 31

Also covers supplies made without consideration, where Schedule I treats them as supply.

Rule 28: distinct or related persons

1) Open market value; 2) value of like kind and quality; 3) Rule 30, then Rule 31

Where the recipient is eligible for full input tax credit, the value declared in the invoice is deemed to be the open market value. For goods meant for further supply as such, the supplier may opt for 90% of the price the recipient charges an unrelated customer for goods of like kind and quality.

Rule 29: goods supplied through an agent

Open market value of the goods; or, at the supplier's option, 90% of the price charged by the agent to an unrelated customer for goods of like kind and quality; else Rule 30, then Rule 31

Applies where the agent undertakes to supply the goods on behalf of the principal.

Rule 30: cost method

Value = 110% of cost of production or manufacture, or cost of acquisition, or cost of provision of service

Used when open market value and like kind and quality value cannot be found.

Rule 31: residual method

Value = determined using reasonable means consistent with the principles of section 15 and the rules

The last rung. For services, the supplier may go straight to Rule 31, ignoring Rule 30.

Pure agent: value of supply

Value = own-account supply value only (reimbursed costs excluded)

Rule 33. Excluded only if all conditions are met. Otherwise the reimbursement is added to value.

Pure agent conditions (summary)

Authorised by recipient + recipient liable to pay third party + recipient knows the third party supplies + recipient receives and uses the goods or services + shown separately in invoice + recovered at actuals + in addition to own supplies

The supplier must hold no title to the goods or services, must not use them for himself, and must receive only the actual amount.

Money changing: spread method

Value = (buying or selling rate − RBI reference rate) × units of currency

Rule 32. Applies where the RBI reference rate for the currency is available.

Money changing: fall-back where RBI rate is not available

Value = 1% of the gross amount of currency exchanged, for each transaction

Rule 32. This fall-back belongs to the spread method. It applies only where the RBI reference rate is not available.

Money changing: slab option

Up to ₹1,00,000: 1% of gross amount, minimum ₹250. Above ₹1,00,000 and up to ₹10,00,000: ₹1,000 + 0.5% of amount above ₹1,00,000. Above ₹10,00,000: ₹5,500 + 0.1% of amount above ₹10,00,000, maximum ₹60,000

Rule 32. A separate option that the supplier may choose instead of the spread method.

Used goods: margin scheme

Value = Selling price − Purchase price (negative margin ignored)

Rule 32. Applies to a dealer in used goods sold as such or after minor processing that does not change their nature, and only where no input tax credit was availed on purchase.

Vouchers, tokens, coupons

Value = determined under Rule 32 by reference to the goods or services redeemable against the instrument

A voucher is defined in section 2(118). Postage stamps are excluded. Confirm the exact wording in the current text of Rule 32 before quoting it.

Lottery

Value = 100 ÷ (100 + rate of tax) × face value of ticket or price notified by the organising State, whichever is higher

Rule 31A. Lottery is a special case with its own rule.

Cost method

Value = 110% of cost of production, manufacture, acquisition or provision of service

Rule 30. Applies where the value cannot be determined under Rules 27 to 29. Rule 29 deals with supplies made or received through an agent.

Residual method

Value = reasonable means consistent with section 15 and Rules 27 to 30

Rule 31. Applies where the value cannot be determined under Rules 27 to 30, including Rule 29 for agents and Rule 30 for cost.

Quick revision

• Value of supply = transaction value = price actually paid or payable, if parties are not related and price is the sole consideration.
• Transaction value under Section 15(1) applies only where the parties are not related and price is the sole consideration. Where the value cannot be determined under Section 15(1), it is determined in the prescribed manner (Section 15(4)).
• Taxes, duties, cesses and fees under any law other than the CGST, SGST, UTGST and GST (Compensation to States) Acts are included if charged separately by the supplier.
• Amounts the supplier must pay but the recipient bore are added if not in the price.
• Incidental expenses like commission and packing charged to the recipient are included.
• Interest, late fee or penalty for delayed payment is included.
• Subsidies directly linked to price are included, except Central and State Government subsidies.
• A discount at or before supply is excluded only if recorded in the invoice.
• A post-supply discount needs an agreement at or before supply, link to invoices and ITC reversal by the recipient.
• Related persons under clause (a) of the Explanation include those holding 25 per cent or more of the voting stock or shares of both, family members, and employer and employee. Under clause (c), persons associated in business, where one is the sole agent, sole distributor or sole concessionaire of the other, are also deemed related.
• Always show the total taxable value clearly before applying the tax rate.

Common mistakes

• Treating every invoice price as transaction value. Fix: Always test relationship and sole consideration before accepting the price.
• Believing that related persons always means the price is rejected. Fix: Section 15(1) accepts the price only when parties are not related, so relation takes you to the prescribed method under Section 15(4). Do not claim the price is automatically wrong; state that Section 15(1) is not available.
• Adding CGST or SGST under clause (a). Fix: Remember clause (a) covers only taxes under other laws. The GST Acts and the Compensation Act are excluded.
• Including every subsidy. Fix: Include only subsidies directly linked to price and not given by the Central or State Governments.
• Excluding a discount at the time of supply that is not shown on the invoice. Fix: Check that it is duly recorded in the invoice. Without that, section 15(3)(a) is not met.
• Allowing a post-supply discount without a prior agreement. Fix: The agreement must exist at or before the time of supply and be specifically linked to relevant invoices.
• Treating every transaction between group companies as at invoice value Fix: Check the related-person test first. If the parties are related, the invoice value is accepted only as the rules allow, for example when the recipient has full ITC.
• Applying the 25% test as 'more than 25%' Fix: The text says 'twenty-five per cent. or more' of the voting stock or shares of both persons. Exactly 25% counts.
• Excluding every reimbursement as pure agent expense. Fix: Test every pure agent condition. If the recipient did not authorise the payment, if it is not shown separately, or if the supplier uses the goods himself, add the amount to value.
• Applying the margin scheme to goods on which input tax credit was taken. Fix: Check whether credit was availed. If it was, value the supply under the normal rules and use the full selling price.

Exam tips

• Write the conclusion in provision, analysis, conclusion order. Quote Section 15(1) first, then apply facts.
• Check each fact for a hidden relationship: directors, shareholding of 25% or more, family, sole distributor.
• Always state both conditions, even when only one fails, to show you know the rule.
• Do not compute a value under the prescribed rules unless the rules are given in the question. Say they apply.
• Keep Section 15(2) inclusions and Section 15(3) discounts as a separate step after the transaction value decision.
• Quote the clause letter of Section 15(2) for every item. Marks follow the provision.
• Write the exact condition: 'charged separately', 'directly linked to price', 'not by Government'.
• In numerical questions, show each addition on a separate line and state items excluded with a reason.