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Valuation in GST
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Accounting for GST
What is Taxable Value:
Under GST, the taxable value is the transaction value, which is the price actually paid or payable, assuming the supplier and recipient are unrelated and the price is the sole consideration. In the majority of cases of regular normal trade, the taxable value will be the invoice value. Nonetheless, the Determination of Value of Supply rules has been outlined in the 2017 CGST Rules for determining the value of specific transactions.
What are included in Transaction Value:
The following values are included in the transaction value for the purpose of calculating tax liability:
- Any taxes, fees, or charges imposed by a statute other than the GST law;
- Expenses incurred by the recipient on the supplier's behalf;
- Costs such as commission and packaging incurred by the supplier and
- Interest or penalties for late payments and direct subsidies (except government subsidies).
What is excluded from Transaction Value:
Since discounts such as trade discounts, quantity discounts, etc. are a normal part of trade and commerce, pre-supply discounts, i.e., discounts recorded on the invoice, are permitted to be excluded when calculating the taxable value.
If two conditions are met, discounts provided after the supply can also be excluded when determining the taxable value.
- (a) a discount is established in accordance with a pre-supply agreement between the supplier and the recipient, and the discount is linked to the applicable invoices; and
- (b) the recipient reverses any input tax credit attributable to discounts.
Taxable value when consideration is not just monetary:
The standards must be followed for determining the taxable value when the consideration for a supply is not purely monetary in some circumstances. In these circumstances, the taxable value must be determined by taking into account the following values:
- Value on the open market for such a supply
- The total monetary value of the supply consists of the monetary consideration and the monetary value of the non-monetary consideration.
- Value of supplies of the same kind and caliber.
- Cost-based supply value, i.e., cost of supply plus 10 percent markup.
- The value of a supply is determined using reasonable methods in accordance with GST law's principles and general provisions. (Best Judgment method).
Wht is Open Market Value:
When a supply is made between unrelated parties and price is the only factor, the “open market value” is the whole amount of money, excluding GST taxes, that a person is required to pay.
Example:
If a new phone is offered in exchange for an old phone for Rs 20,000, and the cost of the new phone is Rs 24,000 without the exchange, then the new phone’s open market worth is Rs 20,000.
The value of the laptop supply is Rs. 44000/- when a laptop is provided for Rs. 40000/- in exchange for a printer made by the recipient; the printer’s value is known to be Rs. 4000/- but the laptop’s open market value is unknown.
What is the supply of like kind and quality?
Any other supply made under similar conditions that are identical or closely resembles the valued supply in terms of characteristics, quality, quantity, functionality, and reputation.
Value of supply between separate and connected parties (agents excluded):
Person who is influenced by another person, such as members of the same family or subsidiaries of a group company, is referred to as a related person. As the relationship between two related parties may affect the price between them, the GST law specifies special rules for determining the taxable value of transactions between related parties, as different categories of related parties have been identified. In such instances, the following values must be considered in order to determine the taxable value:
- Value on the open market for such a supply
- Value of supplies of the same kind and caliber.
- Cost-based supply value, i.e., cost of supply plus 10 percent markup.
- The value of a supply is determined using reasonable methods in accordance with GST law's principles and general provisions. (Best Judgment method).
If the recipient qualifies for a full input tax credit, the invoice amount will be considered the fair market value. Moreover, if the recipient intends to resell the goods, the value shall, at the supplier’s discretion, equal 90 percent of the price charged by the recipient to his unrelated customer for the supply of goods of the same kind and quality.
Value of a good supply made or obtained via an agent:
The open market value of the goods being supplied or, at the supplier’s option, 90 percent of the price charged by the recipient for the supply of like-kind and quality goods to an unrelated customer.
Example:
In the event that a principle provides groundnuts to his agent, and the agent thereafter provides groundnuts of the same sort and grade at a cost of Rs 5,000 per quintal on the day of supply. For Rs. 4,550 per quintal, another independent supplier offers the same kind and grade of groundnuts to the aforementioned agent. The principal’s supply must be valued at Rs. 4550 per quintal or, if he exercises his option, at Rs. 4500 per quintal, or 90% of Rs. 5000.
If the value is not determined based on the Open market value of the goods being supplied or, at the supplier’s option, 90 percent of the price charged for the supply of goods of same kind and quality by the recipient to a non-related customer, then the taxable value must be determined using the values listed below:
- Cost-based supply value, i.e., cost of supply plus 10 percent markup.
- The value of a supply is determined using reasonable methods in accordance with GST law's principles and general provisions. (Best Judgement method).
Value of the supply of services in the case of a Pure Agent:
Under certain circumstances, expenses and costs incurred by the supplier in its capacity as the recipient’s sole agent for the delivery of services shall be removed from the value of the supply.
Example:
- Business Setup in India is contracted to handle the incorporation-related legal work for XYZ PRIVATE LIMITED.
- In addition to its service fees, Business Setup in India recovers from XYZ PRIVATE LIMITED the registration fee and name approval fee paid to the Registrar of Companies.
- XYZ PRIVATE LIMITED is required to pay the fees assessed by the Registrar of Companies for registration and name approval.
- Business Setup in India acts only as an agent in the payment of these fees.
- Therefore, Business Setup in India's recovery of these expenses is a reimbursement and not part of the value of the supply made to XYZ PRIVATE LIMITED by Business Setup in India.
Foreign Currency Including Currency Exchange:
Transactions involving the exchange of Indian Rupees:
The taxable value is calculated by multiplying the total number of foreign currency units by the difference between the exchange rate used to buy or sell the currency and the RBI reference rate for that currency at the time of conversion. The taxable value is one percent of the gross amount of Indian Rupees supplied or received by the money changer in the absence of an RBI reference rate for a given currency.
Transaction in which neither of the exchanged currencies is Indian Rupees:
The taxable value will be one percent of the lesser of the two amounts the person exchanging the money would have received by converting either of the two currencies into Indian Rupees (at the RBI reference rate).
The person providing the service may also exercise the following option to determine the taxable value, but once chosen, he cannot revoke it for the remainder of the fiscal year:
- One percent of the gross amount of foreign currency is exchanged for up to one lakh rupees, with a minimum of two hundred and fifty rupees.
- One thousand rupees and one-half of one percent of the gross amount of foreign currency exchanged for amounts exceeding one hundred thousand rupees and up to ten hundred thousand rupees.
- Five thousand rupees and one-tenth of one percent of the gross amount of currency exchanged for an amount exceeding ten lakhs rupees, capped at sixty thousand rupees.
Reservation of airline tickets by an air travel agent:
The taxable value is five percent of the base fare for domestic travel and ten percent of the base fare for international travel. Basic fare refers to the portion of the airfare on which the airline pays a commission to the travel agent.
The term “basic fare” refers to the portion of the airfare on which airlines typically pay commission to travel agents.
Reservation of airline tickets by an air travel agent:
The taxable value varies depending on the nature of the insurance policy. The following are the specifics:
- Where a policy offers dual risk coverage and investment benefits: Taxable value is the gross premium charged minus the amount allocated for investments or savings if the policyholder is informed of such allocation at the time of premium collection.
- The taxable value of a single premium annuity policy where the allocation for investments and savings is not disclosed to the policyholder is 10% of the single premium charged to the policyholder.
- Other cases: 25% of the premium charged to the policyholder in the first year and 12.5% of the premium charged in subsequent years.
- Where an insurance policy provides only risk coverage, the entire premium paid by the policyholder is taxable.
Second-hand goods:
Assuming no input tax credit was claimed on the purchase of such goods, the taxable value of the supply of second-hand goods, that is, used goods as such or after minor processing that does not change the nature of the goods, shall be the difference between the purchase price and the selling price. However, the negative value will be ignored if the selling price is less than the buying price.
Persons who purchase used goods after having paid tax to the supplier of such goods will only be subject to this valuation rule if they do not claim the input tax credit on such input supply. If an input tax credit is claimed, the supply will be subject to standard GST valuation.
Defaulting Borrower:
If the non-registered borrower defaults, the person taking possession of the property will cut the purchase price by five percentage points for each quarter between the date of purchase and the date of disposal.
The agency reclaiming the property from the defaulting borrower will levy GST at the supply value, without deducting it from the real or fictitious purchase price, if the failing borrower is registered.
Redeemable vouchers/stamps/coupons/tokens:
The monetary worth of the supplies of goods or services or both that can be redeemed against a token, voucher, coupon, or stamp (other than a postage stamp) must match the value of the token, voucher, coupon, or stamp in question.
Works Contract Services:
The valuation of a works contract service is contingent on whether the contract includes the transfer of property in land.
In case of a supply of service involving the transfer of property in land or undivided share of land as applicable the value of supply of service and goods portion in such supply shall be equal to the total amount charged for such supply less the value of land or undivided share of land, as applicable, and the value of land or undivided share of land, as applicable, in such supply shall be considered to be one-third of the total amount charged for such supply.
Lottery supply:
The value of lottery supply shall be 100/112 of the face value or the price notified in the Official Gazette by the organizing State, whichever is higher, in the case of State-run lotteries, and 100/128 of the face value or the price notified in the Official Gazette by the organizing State, whichever is higher, in the case of State-authorized lotteries.
Value-determining rate of exchange for currencies other than Indian rupees:
The exchange rate applicable for determining the value of taxable goods, services, or both shall be the RBI reference rate applicable for that currency on the date and time of supply, as determined in accordance with section 12 or section 13 of the CGST Act.
Why Business Setup in India?
Since our inception as an Official Company Registration Agent, we have maintained close ties with the Ministry of Corporate Affairs, Government of India. From day one, our intention has been to offer a streamlined incorporation procedure that is quick and easy to utilize. Today, our system for company registration is among the most efficient and effective in India. You can file an application for a new company name in slightly more than 5 minutes, and your firm will often be fully registered within 3-5 days. In addition to maintaining affordable pricing for company formation, we are constantly investigating new ways to bring value to our clients. We are proud to be one of the least expensive ways to establish a business in India.
We have the knowledge to advise clients on the appropriate company structure to implement. The majority of our clients want assistance registering a business limited by shares. The limited company structure is prevalent because it permits the distribution of profits to shareholders while safeguarding them through restricted liability. Our team has more than 2 decades of experience founding companies and providing corporate and secretarial services, which aids in the growth of tens of thousands of our clients’ enterprises each year.
We are tremendously passionate about the quality of our service, and we are incredibly proud of the reviews we get from our customers, as evidenced by our outstanding reviews and ratings. Continually, our team is chosen due to the value and skill for which it is renowned. We have helped form the industry by giving our customers innovative business services and packaged solutions that have grown alongside their demands.
Our clients have access to complimentary help from a team of experts. We are always prepared to assist. Throughout the registration of your Company, you will be enabled to contact us by phone or email if you require assistance.
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