Goods and Services Tax (GST) and Corporate Tax Planning · Value of Supply

Related Persons and Valuation Rules under GST

Updated 11 October 2026 · Fact-checked

Under GST, supplies between related persons or distinct persons are valued at transaction value only if they are unrelated and price is the sole consideration. Otherwise you move to the CGST Rules: open market value first, then like kind and quality, then the cost method (110% of cost), then the residual method.

Understand Related Persons and Valuation Rules

Section 15 starts with a simple idea. Value of supply is the transaction value, the price actually paid or payable. This holds only where the supplier and recipient are not related and the price is the sole consideration. If either condition fails, the transaction value cannot be accepted as it stands.

The reason is easy to see. Related parties can fix a price to suit themselves, for example a very low price to a group company. So the law uses a test of relationship. The Explanation to section 15 says persons are related if, among other cases, they are officers or directors of one another's businesses, legally recognised partners, employer and employee, or members of the same family. They are also related if one person owns, controls or holds 25% or more of the voting stock or shares of both of them. Other cases are where one controls the other, both are controlled by a third person, or together they control a third person. A sole agent, sole distributor or sole concessionaire of another is deemed related. The term person also includes legal persons.

When the transaction value cannot be accepted, or cannot be determined, section 15(4) sends you to the prescribed manner, which is the CGST Rules. Rule 27 deals with supplies where consideration is not wholly in money. Rule 28 deals with supplies between distinct or related persons. Rule 29 deals with goods supplied through an agent. Rules 30 and 31 are the fallback: the cost method and the residual method.

The rules are a ladder. You use the first rung that works and move down only if it fails. Open market value comes first, then value of like kind and quality, then the cost method, then the residual method. Distinct persons (for example, branches in different States with separate registrations) are treated as separate persons, and supplies between them in the course of business are taxable even without consideration. Rule 28 values them in the same way as related persons.

Key rules to remember

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.

How to solve Related Persons and Valuation Rules questions

Use this order for any question on valuation between related persons, distinct persons, agents or non-cash consideration.

1Identify the parties. Check whether they are related under the Explanation to section 15, are distinct persons, or are principal and agent. Name the exact limb that applies.
2Check the two conditions of section 15(1): the parties are not related, and the price is the sole consideration. State which one fails.
3Say transaction value cannot be accepted and the value is fixed under section 15(4) using the CGST Rules.
4Pick the right rule: Rule 27 for non-cash consideration, Rule 28 for related or distinct persons, Rule 29 for goods through an agent.
5Go down the ladder in order: open market value, like kind and quality, then Rule 30 (110% of cost), then Rule 31. Use the first rung that the facts allow.
6Check the special provisos: full ITC to the recipient, and the 90% option for goods supplied for further supply as such.
7Add or subtract section 15(2) and 15(3) items such as incidental expenses or eligible discounts, then compute the tax. Write the conclusion in one line.

Quickest way: Ladder method for valuation questions

When to use it: Use when the question gives you several values (invoice price, market price, cost) and asks for the taxable value.

Underline the relationship words: subsidiary, director, brother, sole distributor, branch, agent.
If related or distinct and recipient has full ITC, accept the invoice value. If not, move on.
If an open market value or a like-kind price is given, use it. Check whether the 90% option applies for goods meant for further supply as such.
If only cost is given, take 110% of cost. If nothing fits, say Rule 31 and use a reasonable method.
For barter, use the open market value of the supply, or money plus the money value of the non-cash consideration.
Write the rule number next to each step. Marks go for the rule and the reasoning.

Common mistakes in Related Persons and Valuation Rules

Treating every transaction between group companies as at invoice value
Students assume the invoice price is always the transaction 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%'
Students recall the figure but not the exact words.
Fix: The text says 'twenty-five per cent. or more' of the voting stock or shares of both persons. Exactly 25% counts.
Jumping to the cost method (110% of cost) without trying open market value
Cost is the easiest number to compute.
Fix: Always follow the ladder. Rule 30 applies only when open market value and like kind and quality value cannot be found.
Applying 110% to the selling price instead of cost
Students misread the rule as a mark-up on price.
Fix: 110% applies to the cost of production, manufacture, acquisition or provision of service.
Ignoring non-cash consideration in barter cases
Students value only the money part.
Fix: Under Rule 27, include the money value of the non-cash consideration, or use the open market value of the supply.
Forgetting that a sole agent, sole distributor or sole concessionaire is deemed related
It sits in a separate clause of the Explanation, and the parties may be otherwise independent.
Fix: Read the facts for sole agency or exclusive distribution and cite that clause of the Explanation.

Worked examples

Example 1

Shah Textiles Ltd supplies fabric to Shah Retail Pvt Ltd, a company controlled by the same promoters, at ₹70,000. Shah Retail sells fabric of like kind and quality to unrelated customers at ₹1,00,000. The goods are meant for further supply as such, Shah Retail is not eligible for full input tax credit, and no open market value is available. Shah Textiles chooses the 90% option. Find the value of supply.

Show the solution

Both companies are controlled by the same promoters, that is, by a third person. They are related persons under the Explanation to section 15, so transaction value cannot be accepted.
Rule 28 applies. The goods are for further supply as such, so the supplier may opt for 90% of the price the recipient charges an unrelated customer.
Value = 90% × ₹1,00,000 = ₹90,000.
The invoice price of ₹70,000 is ignored. If GST is 18%, tax = ₹16,200.

Answer: The value of supply is ₹90,000, with GST of ₹16,200 at 18%.

Example 2

Mehra Engineering Ltd supplies a machine to Patel Traders Pvt Ltd for ₹3,00,000 in cash plus goods supplied by Patel Traders whose open market value is ₹2,00,000. The open market value of the machine is not available. Find the value of supply.

Show the solution

The consideration is not wholly in money, so transaction value cannot be accepted. Rule 27 applies.
The first rung, open market value of the machine, is not available.
Next rung: value = money consideration + money value of the non-cash consideration.
Value = ₹3,00,000 + ₹2,00,000 = ₹5,00,000.

Answer: The value of supply is ₹5,00,000.

Exam tips

Write the section 15(1) conditions first, then say which one fails. This gives you the provision-analysis-conclusion shape the examiner wants.
Quote the exact limb of the Explanation to section 15 for relatedness, and use the facts to show it applies.
Show the ladder in order and name the rule at each step, even if the early rungs fail.
State the provisos: full ITC to the recipient and the 90% option. Many answers lose marks by leaving these out.
This is an open book paper, so you may keep the rule text at hand. Practise using it, but write the reasoning in your own words.

Practice questions from Value of Supply

Related Persons and Valuation Rules in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Related Persons and Valuation Rules: frequently asked questions

Who are related persons under GST?

The Explanation to section 15 lists them. They include directors or officers of one another's businesses, legally recognised partners, employer and employee, and members of the same family. They also include persons where one holds 25% or more of the voting stock of both, one controls the other, or a third person controls both. Sole agents, sole distributors and sole concessionaires are deemed related.

Is supply between related persons always valued under the valuation rules?

No. Section 15(1) accepts the transaction value only if the parties are unrelated and price is the sole consideration. So relatedness alone means the valuation rules are used. Under Rule 28, if the recipient is eligible for full input tax credit, the invoice value is deemed to be the open market value.

How is value determined when consideration is not wholly in money?

Rule 27 applies. You take the open market value of the supply. If it is not available, you take the money consideration plus the money value of the non-money part. Failing that, use the value of like kind and quality, then Rules 30 and 31.

When do I use the cost method in Rule 30?

Use it only after open market value and the value of like kind and quality fail. The value is 110% of the cost of production, manufacture, acquisition or provision of service. If that also fails, use Rule 31.