Difference Between FOB Value and Invoice Value: A Complete Guide for Exporters

Understanding the difference between FOB value and invoice value is crucial in international trade and export documentation. These two terms play a significant role in taxation, pricing, and customs clearance.

FOB (Free on Board) value refers to the cost of goods up to the point of shipment, excluding freight & insurance charges. Invoice value, on the other hand, is the total amount payable by the buyer, including freight & insurance, handling, and transport charges.

Having a detailed knowledge about this distinction enables export/import businesses to calculate taxes accurately and maintain transparency in trade.

FOB vs Invoice Value: What’s the Difference?

The table below displays key difference between FOB value and invoice value:

Parameters	Free on Board Value (FOB)	Invoice Value
Purpose	Denotes the point of ownership transfer and risk from seller to buyer.	The chargeable total amount for goods and services including several other costs and taxes.
Focus	Focuses on goods cost till goods loading on the shipping vessel.	Focuses on total costs of the actual transaction, which includes several other costs and profit.
Inclusions	Costs of goods to transfer, packaging, loading charge, local transportation charges till the port.	Freight & insurance charges, FOB value, and handling fees.
Exclusions	Freight & insurance after loading onto the vessel, and marine insurance	Might or might not exclude duties and taxes
Used for	Calculation of incentives relating to export, such as MEIS, RoDTEP	Valuation of import and custom duty calculation
Documents Required	Shipping bills	Commercial invoice and import bill of entry
Fixed or Variable	Fixed till the goods are not transferred to vessel	Varies depending on the terms of contract and charges
Role of Customs	FOB value is used by Indian customs for processing exports	The importing country considers invoice value for calculation of import duties
Significance for Exporters	Helps in achieving refunds and incentives, and used for GST law returns and bank filings	Let buyers depict total costs
Incoterm Basis	FOB (Free on Board) Responsibility of seller till loading of goods to the vessel	Depends entirely on the agreed term (e.g., Cost, Insurance & Freight)

What is FOB Value?

FOB, or Free on Board (sometimes referred to as Freight on Board), represents the value of goods up to the point of export. When the goods are loaded onto the vessel at the exporting country’s port, the risk transfers from seller to buyer. FOB value typically appears on export invoices and shipping bills.

In simple terms, FOB includes costs for packaging, production, local transport to the port, and loading, but excludes international freight & insurance, and taxes imposed by the importing country.

How to Calculate FOB Value?

To calculate FOB value, we use the formula:

FOB Value = Ex-Factory Price + Local Costs (up to loading on vessel)

Local costs may include:

• Packing charges
• Inland transportation (to the port of export)
• Customs clearance fees
• Loading charges (at the port)

Example 1: Simple FOB Calculation

• Quantity of goods sold: 200 kg
• Rate per kg: ₹30
• Ex-Factory Price (200 × 30) = ₹6,000

Other Costs:

• Packing Charges = ₹1,200
• Transport to Port = ₹800
• Customs Clearance = ₹1,000

Total Other Costs = ₹3,000

FOB Value = ₹6,000 + ₹3,000 = ₹9,000

This FOB value is declared in shipping bills and represents the total cost of the goods delivered to the port, ready for loading onto the export vessel.

Example 2: Comprehensive FOB Calculation

• Ex-Factory Price: ₹1,50,000
• Inland Transportation to Port: ₹6,000
• Customs Clearance Charges: ₹4,000
• Loading Charges at Port: ₹3,500
• Packing Charges: ₹2,500
• Insurance (Contingency before shipping): ₹2,000

FOB Value = ₹1,50,000 + ₹6,000 + ₹4,000 + ₹3,500 + ₹2,500 + ₹2,000 = ₹1,68,000

In this case, FOB includes all expenses incurred up to the point of loading the goods onto the shipping vessel, excluding international freight and marine insurance.

What is an Invoice Value in GST?

Invoice Value is the total price payable by the buyer as shown in the commercial invoice. In the Indian scenario, it encompasses:

• Price of the goods (can be FOB, Cost, Insurance & Freight or any other Incoterm value, depending on the contract)
• Plus: Any applicable taxes (such as GST)
• Plus: Any charges such as freight & insurance (if applicable)
• Minus: Discounts, rebates, if offered on the invoice

This value is also reflected in GST INVOICE/ Shipping Bill Value documentation.

How to Calculate Invoice Value?

Invoice Value=(Goods Price−Discounts)+Taxes+Shipping+Other ChargesInvoice Value=(Goods Price−Discounts)+Taxes+Shipping+Other Charges

Example:
If an Indian company sells machines worth ₹30,000 each (for 100 units):

• Subtotal: ₹30,00,000
• Packing: ₹2,000
• Freight: ₹8,000
• GST: 28%
• Discount: ₹10,000

Taxable Value=₹30,00,000+₹2,000+₹8,000−₹10,000 = ₹30,00,000

Taxable Value=₹30,00,000+₹2,000+₹8,000−₹10,000 = ₹30,00,000

GST=28% of ₹30,00,000 = ₹8,40,000

GST=28% of ₹30,00,000 = ₹8,40,000

Invoice Value = ₹30,00,000+₹8,40,000 = ₹38,40,000

This value must match across Shipping Bills and invoices to ensure proper GST Refund and regulatory compliance.

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Importance of FOB and Invoice Value in Indian Trade Documentation

Export Declaration (Shipping Bill)

Indian Customs Electronic Gateway (ICEGATE) mandates the declaration of both FOB Value and Invoice Value in the Shipping Bills. The FOB value holds particular significance for:

• Claiming duty drawback
• RoDTEP Scheme (Remission of Duties and Taxes on Exported Products)
• Export performance under Foreign Trade Policy

GST on Exports

Export of goods is considered zero-rated supplies for GST. Still, GST Refund (in the event of IGST paid on export) is permitted on FOB value or Invoice value, whichever is less.

For example, suppose your GST INVOICE/ Shipping Bill Value is ₹2,65,000 whereas FOB value is ₹2,30,000. GST Refund would typically be limited to the FOB value.

Bank Realisation Certificate (BRC)

Banks release a BRC upon foreign exchange realization, usually on the basis of Invoice Value. This is important for availing export benefits (under DGFT) as well as to be compliant with RBI policies.

3 Common mistakes Indian Exporters Make

1. Assuming Invoice Value as FOB

Exporters mistakenly believe that their total invoice value is equivalent to FOB, particularly when they quote Cost, Insurance & Freight (CIF) or CFR contracts. This may result in over-invoicing FOB in Shipping Bills, drawing penalties or disallowing incentives.

2. Under-declaration of Freight

Freight & insurance have to be separately declared in CIF/CFR exports. Benchmark freight rates are applied by customs authorities to check claims. Under-declared, it can lead to:

• Delays
• Increased scrutiny
• Non-processing of RoDTEP or GST refunds

3. Mismatch Between Invoice and Shipping Bill

Invoice value declared in the commercial invoice and that declared in the Shipping Bill has to match correctly. If not, it can cause:

• Delayed GST refund
• Customs queries
• DGFT audit discrepancies

Tips for Businesses in Handling Invoice Value and FOB Value

To manage international trade efficiently, businesses should:

Present Clear Documentation for FOB and Additional Charges

Keep a record of FOB value separately from insurance, freight, and other charges. Organise the bills of landing, invoices, and shipping documents. This enables easy tracking of costs and explains values if required.

Clarify Incoterms in the Contract

Use Incoterms like FOB or Cost, Insurance & Freight clearly in contracts to avoid confusion at the time of actual transaction. This enables both buyer and seller to understand duties and responsibilities. Also, it prevents confusion during payment, shipping terms, and customs.

Use Valuation Methods for Customs and Audit

Adopt a consistent approach when calculating FOB and invoice values. This is especially important when issuing invoices in advance or filing Shipping Bills and claiming GST Refund.

Consultation with Trade Experts for Accuracy

Freight consultants help calculate correct values and ensure compliance with GST law, DGFT guidelines, and IGST Value norms. They help ensure correct values and compliance with global standards.

Conclusion

To summarise, FOB value and invoice value are distinct yet equally important in global trade. While FOB clarifies the cost and risk up to the point of export, the invoice value reflects the total amount payable by the buyer.

Having a clear idea of the difference between FOB value and invoice value and accurately documenting both in Shipping Bills, invoices, and returns ensures smooth GST Refund processing and compliance with GST law. For export/import businesses, precision in IGST Value reporting and valuation documentation is essential for seamless global transactions.

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