Under GST law, the transaction value is taxable value i.e. the price paid or payable, provided the supplier & the recipient are not related and price is the sole consideration. In normal trade, invoice value is considered as a taxable value. However, to determine value of certain specific transactions,the Determination of Value of Supply rules have been prescribed in CGST Rules, 2017. The following elements need to be INCLUDED in taxable value:
Any taxes, fees, charges levied under any law other than GST law,
Expenses incurred by the recipient on behalf of the supplier, incidental expenses like commission & packing
Interest or late fees or penalty for delayed payment and direct subsidies (except government subsidies) are required to be added to the price (if not already added).
The following elements need to be EXCLUDED in taxable value:
Discount like trade discount and quantity discount are pre supply discount i.e shown in invoice is allowed to be excluded from taxable value
Discount provided after the supply can also be excluded while determining the taxable value provided two conditions are met, namely -
(a) discount is established in terms of a pre supply agreement between the supplier & the recipient and such discount is linked to relevant invoices and (b) input tax credit attributable to the discounts is reversed by the recipient.
Lets understand in simple terms which discounts are allowed to be reduced from value of goods or services to calculate GST :
Trade Discount - Yes can be reduced as it is decided at time of sales
Cash Discount - No cannot be reduced as in general trade , cash disocunt is provided for early payments and which cannot be established during issuance of invoice or sale of goods. Only in case cash discount are included as regular practice in the invoice upfront considering the suppliers pre-agreement with customers than it can be reduced from value of goods or service
Quantity Discount - Quantiy discount are provided on basis of fulfillment of commitment ot purchase agreed qunatiy in particular time frame like month , qaurter or year . For Example , if there is contract where quanitty discount is available on purchase of 10,000 pieces in a quarter, In the quarter three orders are placed
A) Order of 3000 quantity B) Order of 6500 quantity and C) Order of 10,000 quantity .
Here quantity discount will be not be applied upfront by supplier in first two order but in third order upfront quantity discount will be given by supplier in invoice itself .
In case of third order quantity discount can be reduced from value of supply. In case of first two order two different credit note will be issued by supplier, which cannot be subsequently reduced to reverse the GST.
Determine taxable value when consideration is not solely in money
In cases, where consideration for a supply is not solely in money, taxable value has to be determined as - prescribed in the rules. In such cases following values have to be taken sequentially to determine the taxable value:
Open Market Value of such supply.
Total money value of the supply i.e. monetary consideration plus money value of the non-monetary consideration.
Value of supply of like kind and quality.
Value of supply based on cost i.e. cost of supply plus 10% mark-up.
Value of supply determined by using reasonable means consistent with principles & general provisions of GST law. (Best Judgement method)
Open Market Value means the full value in money excluding taxes under GST laws, payable by a person to obtain such supply at the time when supply being valued is made, provided such supply is between unrelated persons and price is the sole consideration for such supply.
Supply of like kind & quality means any other supply made under similar circumstances that is same or closely resembles in respect of characteristics, quality, quantity, functionality, reputation to the supply being valued.
Illustration: (1) Where a new phone is supplied for Rs. 40000/- along with the exchange of an old phone and if the price of the new phone without exchange is Rs.74000/-, the open market value of the new phone is Rs 74000/-.
(2) Where a laptop is supplied for Rs. 40000/- along with a barter of printer that is manufactured by the recipient and the value of the printer known at the time of supply is Rs. 4000/- but the open market value of the laptop is not known, the value of the supply of laptop is Rs. 44000/-.