Value of Supply

• What is the value of supply under GST?
• Why is the value of supply important?
• How is the value of supply determined?
• Value of Supply for imported goods and services under GST
• Discounted Supplies under GST
• Supply of free items under GST

What is the value of supply under GST?

The value of supply for a transaction is the price or consideration paid by the customer to the supplier. It includes extra charges like shipping and handling, but it does not include GST.

Some actions that aren’t sales, such as stock transfers between two states, are still considered taxable transactions. In these cases, the value of supply is the open market value, or the amount the goods are expected to sell for.

Why is value of supply important?

The GST to be applied on a transaction will depend on the value of these goods and services sold or transferred. 

Buyers can pay for transactions with a monetary consideration by giving the seller cash or electronically transferring money. They can also pay for transactions with non-monetary considerations by giving the seller other goods or services in exchange. 

Finally there are cases where they can pay for transactions partly in cash and partly in kind (by bartering goods or services). Hence it is really important to accurately calculate the value of supply.

How is the value of supply determined?

As a general rule, the value of supply is the amount that was paid for the goods or services, minus GST. Because some transactions are paid in cash while others are in trade or barter, there are two sets of rules for calculating the value of supply.

• The General Valuation Rules apply to transactions where the buyer pays the whole price of the products or services in cash.
  • In this case, the value of supply is the total price or consideration paid, minus the GST on that amount.
  • Value of Supply = Consideration - GST on Consideration
• The Special Valuation Rules apply to transactions where some or all of the payment is in trade instead of cash.
  • Completely non-cash payment 
    • If the buyer pays entirely in trade and no cash, the value of supply is the open market value of the products or services, minus the GST on that amount.
    • Value of Supply = OMV - GST on OMV
  • Partially non-cash payment
    • If the buyer pays partially in cash and partially in trade, the value of supply is the cash price paid plus the open market value of the traded products or services, minus the GST on that total amount.
    • Value of Supply = (Monetary Consideration + In-kind Consideration) - GST on Total Consideration      Note: The value of supply includes cess, billable expenses, subsidies, penalties, and all taxes except GST (and any other charges that may or may not be included in the price of the goods and services supplied). 

Value of Supply for imported goods and services under GST

The value of imported goods is calculated based on the rules provided in the Custom Act. The value of supply is the custom value of the imported goods plus the import duty paid. (Custom Value + Import Duty = Value of Supply)   The value of taxable supply on an imported service is the total consideration times the taxable percentage. (Value of Taxable Supply = Total Consideration X Taxable Percentage)

Discounted Supplies under GST

When items are sold at a discount, their value for GST changes accordingly. The value of supply is the item’s original value minus the discount amount. (Value of Supply = Original Value - Discount)

The GST is levied upon this value of supply, not the original value.

Supply of free items under GST

It’s time you thought beyond freebie marketing strategies because under GST provisions, you may not be allowed to receive input tax credit (refund of tax paid on purchase of goods) on goods that were either lost, destroyed, written off or disposed by you as gifts and free samples.

One way to get input tax credit on items that you give away for free is by declaring their value as a part of taxable supply on your invoices and collect GST on the same (unless you declare its value/OVM as a part of the taxable supply and collect GST on the same).

Rules and provisions related to value of supplies under the GST regime can be found under section 15 of the CGST Act, 2017.