Valuation Rules

SECTION : Valuation in GST

  • Lesson Objectives

    On completion of this lesson, you will be able to understand:

    ·       Applicability of Valuation Rules

    ·       Reasons for doubting Value

    ·      Analysis of Valuation Rules

    ·       Value for Certain Businesses

    ·       Illustration or Examples


    Please go through the Second Video of the Chapter 6.


    Common Provisions or Rules

    There are no separate valuation provisions for CGST, SGST and IGST and Goods and Services. It is common for all three taxes and also common for goods and services. There are no separate valuation provisions for CGST, SGST and IGST and Goods and Services.


    Contract Price

    Contract price is more specifically referred to as ‘transaction value’ and that is the basis for computing tax.


    However, when the price is influenced by some factors like relationship of parties or certain transactions are deemed to be supply, which do not have a price, it is required to overcome these factors to determine the transaction value correctly.


    When are Valuation Rules applicable?

    Reference to Valuation Rules is required only in cases like where consideration payable is not money, or parties to the transaction are related.


    Valuation Rules are applicable when

    (i)                           Consideration not in money terms; or

    (ii)                        Transaction value declared is not reliable. or

    (iii)                      Parties are related or

    (iv)                      Supply by any specified category of supplier mentioned in the GST Law.


    Reasons for doubting transaction value declared

    The reasons have been indicated in draft GST Valuation Rules. It is:-

    (i)                           comparable supplies are at significantly higher value;

    (ii)                        Transaction is at significantly lower or higher than market value of supplies; and

    (iii)                      Mis-declaration in parameters like description, quantity, quality, year of make etc. The list is indicative and not exhaustive.


    This list in indicative and not exhaustive and Department Officer can apply Valuation Rules wherever he feels that Transaction Value to be calculated by using the Valuation Rules.

    Analysis of Valuation Rules for Supply

    Valuation rules are currently hosted on CBEC’s portal and you can access them here. These rules are going to impact all the businesses.

    All possible scenarios wherein valuation is required are categorized under seven different heads. These heads are:

    1. Value of Supply of Goods or Services where the consideration is not wholly in money.

    Example will include cases when a buyer gives another good in exchange of partial consideration and barter.

    2. Value of Supply of Goods or Services or both between distinct or related persons, other than through agent.

    Example will include when goods or services are supplied to related persons or entities which have separate registration but common control.

    3. Value of Supply of Goods made or received through an agent.

    Specific cases when goods or services are supplied between Principal and his agent. There may not be a value-addition but these cases will fall under the definition of supply.

    4.  Value of Supply of Goods or Services or both based on cost.

    This valuation method provides valuation on the basis of the cost of manufacture or cost of acquisition.

    5.  Residual method for determination of the value of supply of goods or services or both.

    Any other method which can be fairly justified.

    6. Determination of value in respect of certain supplies.

    Specific cases such as Foreign Currency Convertor, Life Insurance Business are covered under this head.

    7. Value of Supply of Service in the case of a pure agent.

    This valuation rule will apply to exclusive Principal-Agent related cases.

    Most of these valuation rules are case specific, the all-powerful GST council has also listed up certain businesses such as the sale of foreign currency and life insurance business etc. and their specific valuation rules (Under clause 6 above).

    Determination of value for certain businesses

    Recently introduced GST valuation rules have laid down various scenarios for day-to-day transactions when a businessman may be required to refer to these rules.

    Apart from this, there are certain businesses which have been notified for which a separate valuation method will be applicable. Here, we will discuss these businesses and the value of supplies from such businesses. These shall be determined in the manner provided below.

    Purchase or Sale of Foreign Currency, Including Money Changing

    The value of supply of services when purchasing or selling foreign currency, including money changing, shall be determined by the supplier of service in the following manner:-

    1. For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI) reference rate for that currency at that time, multiplied by the total units of currency.

    For example, on 20th July 2017, Mr. A converted USD 100 into INR 6,200 (INR 62 per USD) through Akbar Travel Group. RBI’s reference rate for buying and selling was Rs. 61/61.5 respectively on such date. Now the value of supply will be:  (62-61)*100 = INR 100

    Thus the value of supply for Akbar Travel will be INR 100 and GST will be levied on this amount.

    In cases where the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received by the person changing the money.

    In above example, if the reference rate is not available then 1% of INR 6,200 i.e. INR 62 will be the value of supply of service.

    2. If neither of the currencies exchanged is Indian Rupee, the value shall be equal to 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.

    For example, let’s assume that USD is converted against EURO. Now as per the above rule, both these currencies will be converted into INR terms and the value of supply will be 1% of the lesser amount.

    Also at the option of the supplier of services, the value in relation to a supply of foreign currency, including money changing, shall be deemed to be:

    (i) one per cent. of the gross amount of currency exchanged for an amount up to one lakh rupees, subject to a minimum amount of two hundred and fifty rupees;

    (ii) one thousand rupees and half of a per cent. of the gross amount of currency exchanged for an amount exceeding one lakh rupees and up to ten lakh rupees; and

    (iii) five thousand rupees and one-tenth of a percent of the gross amount of currency exchanged for an amount exceeding ten lakh rupees, subject to maximum amount of sixty thousand rupees

    However, once opted, this option cannot be withdrawn during the remainder of the financial year.

    Services in relation to booking of tickets for travel by air provided by an 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 such as Yatra or MakeMyTrip, 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 percent of the basic fare in the case of international bookings of passage for travel by air.

    Note: For this rule, the expression “basic fare” means that part of the airfare on which commission is normally paid to the air travel agent by the airline.

    Life insurance business

    The value of supply of services in relation to life insurance business shall be:

    (a) the gross premium charged from a policyholder reduced by the amount allocated for investment, or savings on behalf of the policyholder, if such amount is intimated to the policyholder at the time of supply of service;

    Example: If Rs. 50,000 is gross premium, of which Rs. 45,000 is invested in funds, then the value of supply shall be Rs. 5,000.

    (b) in the case of single premium annuity policies other than (a), ten percent of single premium charged from the policyholder; or

    (c) in all other cases, twenty-five percent of the premium charged from the policyholder in the first year and twelve and a half percent of the premium charged from policyholder in subsequent years

    This rule will not be applicable if the entire premium paid by the policyholder is only towards the risk cover in life insurance.

    Valuation of Supply when buying and selling of second-hand goods

    Where a taxable supply is provided by a person dealing in buying and selling of second-hand goods i.e. used goods, or goods which have undergone minor processing which does not change their nature, and where no input tax credit has been availed on purchase of such goods, the value of supply shall be the difference between the selling price and purchase price and where the value of such supply is negative it shall be ignored.

    This also includes buying and selling on online platforms such as OLX and Quikr.

    Value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp)

    The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or services, or both, shall be equal to the money value of the goods or services, or both, redeemable against such token, voucher, coupon, or stamp.

    Example: If Rs. 1,500 worth of Sodexo is supplied by the taxable person, the value of supply under GST law will also be Rs. 1,500.


    ü  Where a new phone is supplied for Rs.20000 along with the exchange of an old phone and if the price of the new phone without exchange is Rs.24000, the open market value of the new phone is Rs 24000. 


    ü  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.


    ü  Where a principal supplies groundnut to his agent and the agent is supplying groundnuts of like kind and quality in subsequent supplies at a price of Rs.5000 per quintal on the day of supply. Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the price of Rs.4550 per quintal. The value of the supply made by the principal shall be Rs.4550 per quintal or where he exercises the option the value shall be 90% of the Rs.5000 i.e. is Rs.4500 per quintal.


    ü  Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies. The fees charged by the Registrar of the companies registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.


    ü  Suppose Nilkamal Limited is manufacturing office chairs and the cost of manufacturing is Rs. 4,000 per chair. Similar chair in open market is valued at Rs. 4,500. These chairs are supplied to a furniture showroom at the rate Rs. 3,000 and balance in non-monetary consideration. Now since the open market value is available, Rs. 4,500 will be considered for valuation of supply. However in case if Open Market Value is not available, the value of supply as per cost method will be followed which says it has to be 110% of the cost of manufacturing i.e. Rs. 4,000*110% = Rs. 4,400.

    Thus GST will be charged on Rs. 4,400 in this case.



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