Definition: GST (Goods and Services Tax) is charged on the ‘transaction value,’ which is the price actually paid or payable for the supply of goods or services between unrelated parties when the price is the sole consideration.
Components Included in the Value of Supply
- Other Taxes and Charges: The value of supply includes any taxes, duties, cess, fees, and charges levied under any law, except for GST itself. For example, state levies other than GST are included in the value of supply. However, if GST Compensation Cess is charged separately by the supplier, it is excluded.
- Liabilities Incurred by the Recipient: If the recipient incurs any expense that the supplier is liable to pay and it is not included in the price, it should be added to the value of supply. For example, if the buyer pays for transportation which the seller was supposed to pay, that cost should be included in the value of supply.
- Incidental Expenses: Any incidental expenses charged by the supplier, such as packing, commission, and other related costs, should be included in the value of supply. These are additional charges that are part of the transaction.
- Subsidies: Subsidies directly linked to the supply, except for government subsidies, should be included in the value. For instance, if a private organization provides a subsidy for a product, it will be part of the value of supply.
- Interest/Late Fee/Penalty: Any interest, late fee, or penalty charged for delayed payment of consideration should be included in the value of supply. This ensures that the GST value covers all potential costs related to the supply.
Example of Value of Supply under GST
Consider ABC, a manufacturer selling tools and hardware like drills, polishers, and spades. ABC sells a power drill to XYZ, a wholesaler. The MRP (Maximum Retail Price) is Rs. 5,500, but ABC sells it for Rs. 3,000.
Invoice under the Previous Tax System:
- Power Drill: Rs. 3,000
- Add: Excise @ 12.5%: Rs. 375
- Subtotal: Rs. 3,375
- Add: VAT @ 14.5% (on subtotal): Rs. 490
- Total: Rs. 3,865
Invoice under GST:
- Power Drill: Rs. 3,000
- Add: CGST @ 9%: Rs. 270
- Add: SGST @ 9%: Rs. 270
- Total: Rs. 3,540
Discounts under GST
- Before or at the time of supply: Discounts given at this stage will be allowed as a deduction from the transaction value. For example, if a discount is offered during the sale and reflected in the invoice, it is deducted from the value of supply.
- After supply: Discounts given after supply are allowed only if certain conditions are met, such as having a prior agreement regarding the discount and the recipient reversing the input tax credit proportionate to the discount.
Valuation of Supply when Transaction is not in INR
When transactions are made in foreign currency, such as in exports, the invoice may be raised in the foreign currency. The IGST (if any) charged in the invoice must be converted using the RBI (Reserve Bank of India) Exchange Rate. These rates are available on the RBI website.
- Exports: For export transactions, the value is converted using the RBI exchange rate to ensure consistency and accuracy.
- Imports: Similar rules apply to imports. When reverse charge is applicable on imported supplies, the invoice amount should be converted using the RBI exchange rate to determine the correct value of supply for GST purposes.
Important Points
- Transaction Value: This is the core basis for GST calculation, ensuring that the tax applies to the actual price paid or payable.
- Inclusion of Various Charges: All relevant charges, taxes (other than GST), and expenses are included to ensure a comprehensive valuation.
- Currency Conversion: Using the RBI rates standardizes the conversion process, ensuring accuracy in international transactions.
By considering these detailed aspects, the valuation for GST ensures a fair and accurate tax calculation on the supply of goods and services, taking into account all relevant factors and charges.