Valuation of Supply for GST

The value of supply under GST can be calculated in multiple ways. Each method varies based on the elements considered in the method. However, additional costs that a supplier incurs to supply goods and services to a recipient need inclusion in the supply value determination. Learn the factors that you need to include in the valuation of supply for GST in this detailed guide.

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What Is Included in the Value of Supply for GST? 

The following are the components that need to be included in the value of supply for GST:

Taxes, Duties, Fees, Charges and Cesses

The value of supply needs to include all taxes, cesses, duties and fees other than CGST, SGST, UGST and GST cess.

Amount Spent by the Recipient on the Supplier’s Behalf

The value of taxable supplies needs to include all costs associated with a supply that the supplier has to pay. A supply might include additional costs which need to be included in the value of taxable supply.

Incidental Costs and the Total Sum Charged for Pre-delivery Activities

Here are the incidental expenses that need to be included in the value of supply:

• When a supplier reimburses a commission collected from the recipient for provisions of goods or services, it is a portion of a taxable supply.
• If the invoice received by a supply recipient contains fees for certificates or inspection as additional components, it needs to be included in the value of the supply.
• When a supplier charges a recipient for packaging, there needs to be a deduction of the cost from the supply’s value.
• If a supplier pays transportation and delivery charges for goods supplied to a recipient, the freight charges need to be deducted from the supply value.

Subsidies

Excluding subsidies provided by the Central and State Governments, all other subsidies connected to a supply need inclusion in the supply’s value.

Late Fees for Payments

The value of supply should include interest, late fees and penalties for delayed payment receipts associated with the exchange of goods and services.

Example of Supply Valuation Under GST

Here is an example of supply valuation under GST, considering components like insurance, freight, pre-supply discounts and GST:

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Importance of Supply Valuation

Here is why supply valuation is important:

1. Accurate Tax Calculation: Supply valuation helps charge the accurate amount of GST that a registered taxpayer needs to pay.
2. Legal Compliance: Valuation of supply helps taxpayers comply with GST laws while avoiding penalties for delayed tax payments.
3. Optimise ITC (Input Tax Credit): Supply value determination helps suppliers claim appropriate input tax credits.
4. Pricing Strategy: Supply valuation influences the pricing strategies of suppliers, increasing market competitiveness.
5. Transparency: Transparency in financial reporting and transactions is one of the important reasons to undertake supply valuation.
6. Financial Planning: With an accurate valuation of supplies, suppliers can perform accurate financial forecasting and planning.

How Is Supply Value Calculated?

The table below illustrates the method of calculating the supply value:

Valuation of Supply Using Cost Method

Here are the components used in calculating supply value with the cost method:

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Valuation of Supply Using Residual Method

The following table depicts the supply value calculation with the residual method:

How to Calculate Supply Valuation for GST?

Here is how you can calculate supply valuation for GST:

CGST Rules Related to Supply Valuation

When it is not possible to assess the supply value under Section 15 as the price is not the sole consideration, the CGST Rules, 2017 apply. Here is how the value of supply needs to be treated:

1. Open Market Value: It considers transactions that are entirely monetary, but might not include GST payable for the transaction. This method needs to be applied when the provider and recipient exhibit no relation and the price is the only consideration.
2. Supply of Services and Goods of Like Kind and Quality: When there are similarities in quantities, qualities, functional aspects, materials and reputation between goods and services supplied, this method is applicable.

The following are the rules for supply valuation:

Rule 27: When the Consideration Is Not Entirely in Money

The value of supply is

• Open market value
• The complete consideration in money and any additional amount in money which is not equal to consideration in money if the open market value is unavailable
• For the supply of similar goods and services, when it is not possible to determine the value of supply using the above-mentioned criteria
• It includes money and money equivalent to the non-monetary consideration, in addition to a 10% markup.
• Alternative reasonable techniques in accordance with Rule 31

Rule 28: When Supply Is Between Distinct or Related Persons Other than an Agent

When the open market value is unavailable, but the supplier and recipient are related, the following rules apply:

• The supply value of similar goods and services when supplied by an agent
• When the supply value is difficult to determine using the aforesaid criteria, regulations 30 or 31 apply.
• If the recipient supplies goods and services, the supplier can choose to claim 90% of the amount that the recipient charged his/her unaffiliated clients as the value of commodities.

Rule 29: Supply Is Made Through an Agent

If the supply is made through an agent, the following rules apply for supply value determination:

• Open market value of commodities
• The supplier can deduct 90% of the price that the recipient charged him/her for the supply of similar products from his unaffiliated clients.
• However, if the criteria mentioned above are not applicable, regulations 30 or 31 apply.

Rule 30: If you cannot determine the supply value using rules 27, 28 and 29, rule 30 applies. The rule states that the value is 110% of production costs, cost of acquisition or the price of rendering such services. Service providers can, however, implement Rule 30 to consider Rule 31.

Rule 31: When you cannot determine the supply value using Rules 27 to 30, you need to consider Rule 31 and the rules of Section 15 followed by the chapters’ provisions of reasonable methods.

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Conclusion

The value of supply under GST can be calculated using the comparative method, computed value method and residual method. A common factor in all the aforesaid methods is the inclusion of additional costs and charges to determine the value of the supply of goods and services.

Ensure you consider the components accurately based on the method of supply value calculation in order to avoid penalties. This will further ensure business compliance with GST rules and regulations.

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