Valuation rules under GST to calculate valuation when not possible under section 15 of CGST Act, 2017
Valuation rules were notified by government to determine the value of supply of goods or services or both. These rules are notified to provide valuation methods in case valuation is not possible under section 15 of CGST Act, 2017.
These rules provides the methods to value the supplies where:
- The consideration is not wholly in money,
- Value of supply of goods or services or both between distinct or related persons, other than through an agent,
- Value of supply of goods made or received through an agent,
- Value of supply of goods or services or both based on cost,
- Residual method for determination of value of supply of goods or services or both,
- Determination of value in respect of certain supplies,
- Value of supply of services in case of pure agent,
- Rate of exchange of currency, other than Indian rupees, for determination of value.
If your supply does not fall under any of the above cases, you can read valuation as per section 15 of CGST Act, 2017.
How to calculate taxable value of supply when consideration is not wholly in money (Rule 1 of valuation rules)?
Suppose you sold an item and have received money partly into cash and partly in exchange of another item. Under this situation how will you arrive at taxable value?
As per rules available in public domain rule 1 states, when the consideration is not wholly in money, the value of supply/sale shall :
- be the open market value of such supply;
- if open market value is not available, be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money if such amount is known at the time of supply;
- if the value of supply is not determinable under clause (a) or clause (b), be the value of supply of goods or services or both of like kind and quality;
- if value is not determinable under above possible ways, then rule 4 or rule 5 needs to be referred.
Lets us understand this concept with an example,
Suppose your have sold a Motorcycle in exchange of an old motorcycle. The new motorcycle without exchange is sold at Rs. 90,000 and with exchange offer the motorcycle was sold for only 65,000.
In this case the value of supply will be Rs. 90,000 and not 65,000 because the open market value of motor cycle is Rs. 90,000.
How to calculate value of supply or sale to tax under GST when buyer and seller are related parties (Rule 2 of valuation rules)?
When the goods or services are delivered or sold or supplied to related person, then value of goods shall be:
- be the open market value of such supply;
- if open market value is not available, be the value of supply of goods or services of like kind and quality;
- if value is not determinable as above, be the value as determined by application of rule 4 or rule 5, in that order:
Provided where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of goods or services.
Value of supply of goods made or received through an agent (Rule 3 of valuation rules)
The value of supply of goods between the principal and his shall be:
- The open market value of the goods, or
- There is an option where value can be taken as 90% of the ultimate selling price by the agent, the customer and agent should not be related.
Lets understand this with an example.
Suppose Mr. A is supplying goods to his agent who sells those goods for Rs. 10,000. Another seller is also supplying same goods to agent and charge agent Rs. 8000.
Mr. A can either consider value of supply Rs. 8,000 or exercise his option and consider value to be 90% of 10,000.
If value is not ascertainable by applying above rule, then rule 4 and rule 5 should be considered.
How to calculate value of supply of goods or services or both based on cost (Rule 4 of valuation rules)
When you are not able to calculate value of supply made from any of the rules explained above, you should calculate value of supply with help of rule 4.
As per rule 4, if the value of supply is not ascertainable from any of the above rules, the value of supply should be 110% of the cost of manufacturing or cost of acquisition or cost incurred in provisioning of services.
Lets us understand this rule with an example,
Suppose Mr. A bought a pen worth Rs. 500 and he is not able to calculate the value of supply. In this case the value of supply will be considered as 110% of cost of acquisition ( 500 ), which will be Rs. 550.
Residual method for determination of value of supply of goods or services or both ( Rule 5 of valuation rules )
Where the value of supply of goods or services or both cannot be determined under rules 1 to 4, the same shall be determined using reasonable means consistent with the principles and general provisions of section 15 and these rules:
Provided that in case of supply of services, the supplier may opt for this rule, disregarding rule 4.
This is the general last option given to supplier, if he is not able to calculate value as per any of the above rules (Rule 1 to Rule 4), he shall determine the value using reasonable means which must be in consistent with above rules and section 15 of the act.
Determining the value of supply of services in relation to purchase or sale of foreign currency, including money changing
In case of service in relation to purchase or sale of foreign currency, including money changing services, the value of taxable service shall be calculated as follow:
- If currency is exchanged from or to Indian Rupees (INR), then difference between the exchange rate (buying or selling) and RBI reference rate multiplied by the total units of currency should be the taxable value.
For example, Mr. A provides currency exchange service. He purchase 100 USD at the rate of 63, at the time of purchase RBI reference rate was 65. In this case taxable supply will be difference between RBI reference rate and actual purchase rate. In this case value of supply will be 100x(65-63) = 200 Rs.
If RBI reference rate is not available for the currency, then the value of taxable supply will be 1% of the gross amount of Indian Rupees provided or received.
If neither of the currency is Indian Rupees, then value of the supply will be 1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by RBI.
Further another option is provided to determine the value of supply/sale, however once this option is exercised, it should be followed for whole financial year.
As per option provided, the value of supply shall be deemed to be:
- 1% of the gross amount of currency exchanged for an amount up to one lakh rupees, subject to a minimum amount of Rs. 250;
- 1000 Rs. and .5% of the gross amount of currency exchanged for an amount exceeding 1,00,000 rupees and up to 10,00,000 rupees; and
- 5,000 Rs. and one tenth of a per cent. of the gross amount of currency exchanged for an amount exceeding 10,00,000 rupees, subject to maximum amount of 60,000 Rs.
Taxable value or value of supply or value on which tax should be charged by air travel agent
The value of supply of services in relation to booking of tickets for travel by air provided by an air travel agent, shall be deemed to be an amount calculated at the rate of five percent. of the basic fare in the case of domestic bookings, and at the rate of ten per cent. of the basic fare in the case of international bookings of passage for travel by air.
Explanation - For the purposes of this sub-rule, the expression “basic fare” means that part of the air fare on which commission is normally paid to the air travel agent by the airline.
This sub-rule specifies that in case of agents booking air tickets should charge tax on 5% of basic fare amount in case of domestic flight booking and 10% of basic fare in case of international flight bookings.
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