Transaction Value and Inclusions under Section 15

Understand Transaction Value and Inclusions under Section 15

Key rules to remember

Transaction value (Section 15(1))

Value of supply = price actually paid or payable

Accepted when supplier and recipient are not related and price is the sole consideration.

Value with inclusions (Section 15(2))

Value = Price + non-GST taxes/duties/fees charged separately + supplier's liabilities paid by recipient + incidental expenses + interest/late fee/penalty for delayed payment + linked subsidies (non-Government)

Add an item only if it is not already part of the price. Do not add it twice.

Items never included

Exclude: CGST, SGST/UTGST, IGST, GST Compensation Cess; Central/State Government subsidies; eligible discounts under Section 15(3)

GST is excluded because tax is computed on the value, not as part of it.

Related person test

Persons are related if, as the Explanation to Section 15 provides: they are officers or directors of one another's businesses; they are legally recognised partners in business; they are employer and employee; any person directly or indirectly owns, controls or holds 25% or more of the outstanding voting stock or shares of both of them; one directly or indirectly controls the other; both are directly or indirectly controlled by a third person; together they directly or indirectly control a third person; or they are members of the same family. Persons who are the sole agent, sole distributor or sole concessionaire, howsoever described, of the other person are related only where they are treated as related for the purposes of the Act.

If the parties are related, or price is not the sole consideration, the value is found under the valuation rules (Rule 28 for related persons). The invoice value may be accepted if the relationship has not influenced the price.

Discount condition (Section 15(3))

Discount before or at the time of supply: excluded if recorded in the invoice. Post-supply discount: excluded only if agreed before or at the time of supply, linked to specific invoices, and recipient reverses ITC proportionately

Deduct the eligible discount from the price first. Then add the Section 15(2) inclusions to the net price.

How to solve Transaction Value and Inclusions under Section 15 questions

1. 1Check the two conditions: are the parties unrelated, and is price the sole consideration? If not, say Section 15(1) does not apply directly and use the valuation rules. For related parties, the invoice value may be accepted if the relationship has not influenced the price.
2. 2Write down the base price from the invoice or contract.
3. 3Deduct discounts only if they meet the Section 15(3) conditions. Ignore discounts that fail the conditions.
4. 4List every other charge in the facts. Test each against Section 15(2): non-GST levy, supplier's liability paid by recipient, incidental expenses, interest or late fee, linked subsidy.
5. 5Add only those items not already in the price. Leave out GST and Government subsidies.
6. 6Total the figures to get the value of supply. Then compute GST on this value at the stated rate.
7. 7Write the answer in provision, facts and conclusion form, citing Section 15 and naming each item you added or excluded.

Quickest way: Add-and-strip checklist

Common mistakes in Transaction Value and Inclusions under Section 15

• Including GST in the value of supply.

  Students see 'total invoice amount' and use it without separating the tax.

  Fix: Always find the pre-GST figure first. CGST, SGST, UTGST and IGST are never part of the value.

• Adding a subsidy received from the Central or State Government.

  Students remember 'subsidies are included' and forget the exception.

  Fix: Add a subsidy only if it is directly linked to the price and is not from the Central or State Government.

• Excluding interest or late fee because it is charged later.

  Students think the value is fixed at the time of supply.

  Fix: Interest, late fee and penalty for delayed payment of consideration are part of the value under Section 15(2).

• Adding an expense that is already in the price.

  Students add every charge they see without checking whether the price already covers it.

  Fix: Add an item only if it is charged over and above the price, or paid by the recipient separately.

• Using transaction value for related parties without checking.

  Students skip the conditions and go straight to calculation.

  Fix: Test the relationship and the sole-consideration condition in the first line of your answer.

• Deducting every discount shown in the facts.

  Students treat all discounts alike.

  Fix: A post-supply discount is excluded only if the agreement came earlier, it is linked to invoices, and the recipient reverses ITC.

Worked examples