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:
If your supply does not fall under any of the above cases, you can read valuation as per section 15 of CGST Act, 2017.
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 :
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.
When the goods or services are delivered or sold or supplied to related person, then value of goods shall be:
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.
The value of supply of goods between the principal and his shall be:
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.
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.
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.
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:
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:
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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