Goods and Services Task or GST is one comprehensive tax that covers several other taxes and helps reduce financial burden. With the implication of this new indirect tax, there were a lot of questions from the taxpayers. One of them was how supply valuation would occur under this tax. GST is usually charged on the supply value of goods and services. Some laws are followed during the GST product valuation process. Let’s dig deep and learn to determine the charging value of GST and more.
Evaluating Supply Valuation Under GST
Goods and Services Tax is currently charged based on the transactional value. It is the price usually paid for the supply of goods and services between two unrelated parties. The price or cost is one of the most crucial considerations. The supply value under the Goods and Services Tax usually includes –
- An amount that suppliers are liable to pay which has been incurred by the recipient and is excluded from the price.
- Any cess, taxes, duties, fees, and charges levied under other acts other than the GST. The Good and Services Compensation Cess will not be included if the supplier has charged it separately.
- Subsidies that are linked to supply will be included other than the Government subsidies.
- Incidental expenses like commission and packaging will be included in the value.
- Penalty/interest/late fee will be included for delayed payments.
Let us understand the same with the help of an example.
Here is an overview of a drilling machine under the previous taxation structure –
|Adding 2.5% Excise
|After adding 14.5% VAT
The table below explains valuing new products for GST. Let us assume the CGST and SGST are 9%, respectively.
|Adding 9% CGST
|Adding 9% SGST
Role Of Discount
Discounts are treated differently under the Goods and Services Tax. Discount rates applicable before the supply or during are deducted from the transactional value. However, the discount given after a supply is applicable only when specific conditions are satisfied.
Supply Valuation When The Transaction Is Not In INR
During exports, there is a slight rise in the voices of the taxpayer in foreign currency. The RBI Exchange Rate converts the IGST charged in the bill. The exchange rates are also used during the import of goods. The invoice amount is converted using the RBI exchange rates when the reverse charges are implied on the imports.
Crucial Rules For Supply Valuation
Certain rules have been released for the goods and service valuation for GST. They can be accessed from CBEC’s portal. These rules impact all businesses, and below is a simplified version.
Good Or Services Supply Valuation When It Is Not Wholly About Money
We find dynamic business models where sometimes a buyer pays half the amount in cash and the rest in kind. As a general rule, the supply value will be based on the money received from the buyer. In cases where the partial amount is in cash, the below provisions will be applied –
- OMV or Opem Market Value will be the price present in the open market.
- If there is no open market, the monetary value of the partial amount will be added to the total considerable amount.
For instance, an AC is supplied at Rs. 20000 in exchange for an old one. Now, the price of a new AC is Rs.24000. Therefore, the price of the new product is the open market value of it.
Suppose a monitor is supplied at Rs. 40000 in exchange for a mobile. Its value during the supply is Rs. 4000. If the open market value during the supply of the monitor is unknown, its supply value will be Rs. 44000.
Supply Value Of Goods When Made Or Received Through An Agent
GST is chargeable when goods are supplied from a principal to an agent. Let’s understand who is a principal and agent under best practices for valuing new products and services for GST.
The principal is a person on behalf of whom the agent carries business. An automobile company’s dealership store is one of the best examples of a principal-agent relationship.
An agent under GST law can be a commission agent, broker, mercantile agent, or auctioneer who carries supply business on behalf of another person.
In a principal-agent bond, the agent is not just a broker or a salesperson but also guarantees credit to the buyer. Any supply of goods and services between such parties is liable for GST and helps determine the right tax liability. The supply value under such conditions will be either OMV or 90% of the goods supply.
Supply Valuation For GST For Related Parties
Sometimes, a business has more than one branch across several states. They must register under GST in each state in which they are operating. Besides, a conglomerate can have multiple entities with separate GST registrations. For example, Tata Motors and Tata Steel are different entities under Tata Sons. Such businesses are separate legally but share a common control “related persons” definition.
Under this category, per our step-by-step guide for GST valuation of new products, the supply value will be –
- The supply’s open market value.
- Without OMV, it will be the value of goods and services supplied.
- If the value can still not be determined, the Residual or Cost Method will be used.
These provisions safeguard the transactions between the related parties.
Residual Method For Determining GST Product Valuation
If a registered individual cannot determine a supply value by using the above-given methods, the residual method can be used. The method says if the value of goods or services can’t be figured out by the cost method, it can be done by reasonable means consistent.
Simply put, the supplier can use any method to determine a good’s value, provided the method is justified. However, a registered individual must not exploit it and displace GST’s liability. This is because the penalty provisions under the new regime are strict.
If the manufacturing cost cannot be determined in principle, the valuation via residual method will be based on per unit. Another example of such a valuation method is the number of man-hours needed to finish a job.
Cost Method For Valuing New Products For GST
When there is no direct valuation method possible, the cost method is referred to for each valuation. As per the cost method, if the above provisions do not determine the value of a supply of goods and services or both, the supply value will be 110 % of the production cost, manufacturing cost, or acquisition cost of such goods or the provision cost of such services.
For example, Narayani Limited is manufacturing tables, and the manufacturing cost is Rs. 4000 per table. Now, a similar table has an OMV of Rs. 4500. The tables are sent to a showroom at Rs. 3000. Since the OMV is Rs. 4500, the same will be its supply valuation.
In the absence of OMV, the cost method will be opted. It means it will be 110 % of Rs. 4000, which is the manufacturing cost. It will be Rs. 4400, and the GST will be charged on the same.
Valuation of supply under the Goods and Services Tax is a critical aspect of the taxation system. It determines the amount on which the GST is levied and has far-reaching implications for businesses and the Government. The above points play an integral part in supply valuation under GST. The GST law in India is primarily based on transactional value. Supply valuation under GST requires businesses to determine the value of their supplies accurately. They take into account several factors and ensure compliance with the law. It is recommended to stay updated with the latest GST purpose valuation techniques for new services and seek professional guidance when needed for the best results.
How Do You Value Supply Of Services Under GST?
The transaction value is the cost paid for the supply of any goods or services between two unrelated parties. The supply value under GST includes cess, duties, charges, fees, etc.
How Goods Are Valued Under GST?
Goods are valued under GST based on the transactional value or taxable value. The invoice value is the taxable value in most cases.
How Will You Calculate the Taxable Value Of Services?
The gross amount charged by a service provider includes the payable service tax. The value of such taxable services includes the addition of payable tax. It is the same as the gross amount.
How Do You Calculate Basic Value In GST?
The simple formula for the GST Amount is original cost * GST rate percentage / 100. Besides, the net price is determined by the original cost plus GST.
How Much Turnover Is Required For GST?
The turnover needed for GST is Rs. 40 lakhs for goods and Rs. 20 lakhs for services. Businesses with less than Rs. 40 lakh yearly turnover are not required to register under GST.
What Is The Use Of E Invoice In GST?
E-invoicing eliminates the risk of fake GST invoices. It ensures that the ITC is claimed on real invoices with the help of automation and thorough checking.
What Is The GST Turnover Limit For 2023-24?
The threshold limit has increased from Rs. 1 crore to Rs. 1.5 crore for 2023-24.
Can I Give A Bill Without GST?
It is possible to supply either goods or services or both without mentioning the GST registration number.
Who Can Claim a Refund In GST?
Registered taxpayers can easily claim the excess amount they might have paid under GST. All they need to do is file a refund application to claim it.
What Is the Valuation Rule Under GST?
The tax value can be determined based on ad-valorem under GST. It means a taxpayer can determine the tax value with the help of the assessed value of supplied goods or services.