Goods and services tax (GST) is levied as a percentage of the value of supply of goods and/or services. Therefore, value of the supplies becomes very important to know before charging GST on it.
To know how to arrive at value of supply, we have to go through different provisions of GST law. These provisions set out the mechanism to calculate value of supply on which central tax (CGST) and State tax (SGST) or UT tax (UTGST) are paid for a intra-state supply and Integrated tax (IGST) is paid for a inter-state supply.
As per section 15 of CGST Act, 2017, the value of supply of goods and/or services shall be the transaction value.
Transaction value is the price actually paid or payable for the supply of goods and/or services where supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
What value of supply should include?
As per section 15(2) of CGST Act, 2017, value of supply shall include –
- Any taxes, duties, cesses, fees and charges levied under any statute, other than GST;
- Amount supplier is liable to pay but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods and/or services;
- incidental expenses including commission and packing, charged by the supplier to the recipient of supply and any amount charged for anything done by the supplier in respect of the supply of goods and/or services at the time of, or before delivery of goods or supply of services;
- interest or late fee or penalty for delayed payment of any consideration for any supply; and
- subsidies directly linked to the price excluding subsidies provided by the Govt
What is excluded from the value of supply?
As per sub section 3 of section 15 of CGST Act, 2017, the value of supply shall not include any discount given;
- before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
- after the supply has been effected, if—
- (i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
- (ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.
What if value of supply can’t be determined as per section 15(1)?
As per section 15(4) of the CGST Act, 2017, where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.
Section 15(5) of the CGST Act, 2017 states that notwithstanding anything contained in sub-section 1 or sub-section 4, the value of such supplies as may be notified by the government on the recommendation of the council shall be determined in such manner as may be prescribed.
Tax collected at source (TCS) not includible for the purpose of determination of taxable value of supply as it’s an interim levy not having the character of tax. [Circular No. 76/50/2018 GST dated 31.12.2018]
While calculating value of supply, you need to given special importance to discount if any allowed or to be allowed to your customers. To know the impact of discount on taxable value of supply under GST law, we suggest you to read our article specifically written on how to treat discount while calculating taxable value of supply under GST law.
In case supply is made to related person, where price is not the sole consideration or supply is notified u/s 15(5), the value of supply is to be determined under chapter IV: determination of value of supply of CGST rules.