Valuation under GST determines the monetary base on which tax is levied. The foundational rule is that GST is chargeable on the “Transaction value“ i.e., the price actually paid or payable for the supply of goods or services between unrelated parties, where the price is the sole consideration. However, when the supplier and recipient are related, or part of the consideration is non-monetary, the transaction value cannot be accepted, and valuation must be done under the CGST Rules, 2017 (Rules 27 to 35). These rules prescribe methods like open market value, comparison with similar supplies, and the cost-plus approach. Valuation is crucial because under-valuation leads to revenue loss, while over-valuation burdens taxpayers unnecessarily.
Rules of Valuation under GST (Rules 27 to 35):
Rule 27 – Value of Supply Where Consideration is Not Wholly in Money
Applies when the consideration for a supply is partly in money and partly in kind (e.g., barter or exchange).
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Rule: The value shall be the open market value of such supply.
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If open market value is not available, the value shall be the sum of money (cash) plus the money value of the non-monetary consideration as determined by the supplier, provided it is declared in the invoice.
Example: A car is sold for ₹5 Lakhs cash + an old laptop accepted in exchange. Value = ₹5 Lakhs + fair market value of the laptop.
Rule 28 – Value of Supply Between Distinct or Related Persons
Applies when goods/services are supplied to a related person or between distinct persons (branches in different states) without consideration (free of cost) or for inadequate consideration.
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Rule: The value shall be the open market value of the supply.
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In the absence of open market value, the value shall be 110% of the cost of production or cost of acquisition of the goods or cost of provision of services.
Exception: If the recipient is eligible for full Input Tax Credit (ITC), then the value can be taken as NIL (i.e., no tax) for such inter-branch stock transfers.
Rule 29 – Value of Supply by Way of Purchase or Sale of Foreign Currency, etc.
Applies to transactions involving foreign currency, including money changing, conversion, or exchange.
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Rule: The value shall be the difference between the buying rate and the selling rate (the margin) charged by the supplier, or 1% of the gross amount of currency exchanged, whichever is higher.
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For currency notes (not used as legal tender), the value is the fair market value determined by RBI or an authorized dealer.
Rule 30 – Value of Supply of Services in Case of Pure Agent
Applies when a supplier acts as a pure agent on behalf of the recipient.
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Pure Agent: A person who incurs expenditure on behalf of the recipient and recovers it without any mark-up, and does not supply any goods/services themselves for that expenditure.
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Rule: The value of the principal supply shall exclude the amounts recovered from the recipient as pure agent expenses, provided:
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The supplier acts as a pure agent.
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The expense is separately identified.
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The supplier does not add any profit on that expense.
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Example: A lawyer pays court fees on behalf of a client and recovers it. Court fee is not includible in the value of legal service.
Rule 31 – Value of Supply Where Value Cannot be Determined Under Rules 27 to 30
This is the residuary rule – when none of the earlier rules apply.
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Rule: The value shall be determined using reasonable means consistent with the principles and general provisions of these rules, including:
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The supplier’s own historical data for similar supplies.
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Industry benchmarks.
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Cost-plus method.
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Any other fair and reasonable method, subject to approval of the proper officer.
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Rule 32 – Determination of Value in Respect of Certain Supplies
This rule covers specific situations not covered elsewhere:
| Situation | Valuation Method |
|---|---|
| Lottery tickets / Prize money | 100% of the face value or the price at which it is sold, whichever is higher. |
| Used/second-hand goods / Old gold / Artworks | The margin of the supplier = Selling price – Cost of acquisition (if depreciation not claimed). If the margin is negative (loss), no tax is payable. |
| Tickets for events / entertainment | The full face value of the ticket (including any commission/booking fee), regardless of the actual consideration received. |
| Air tickets (Domestic) | 5% of the basic fare (excluding taxes). |
| Air tickets (International) | 5% of the basic fare (excluding taxes). |
| Services by way of transportation of goods | 5% of the freight charged (under RCM) or 12% (under forward charge) on the gross freight, as applicable. |
| Life Insurance | (a) For single premium policies – 5% of the premium; (b) For other policies – 5% of the first year’s premium + 1.25% of subsequent year’s premiums. |
| Health Insurance / Motor Insurance | 5% of the gross premium charged (excluding GST). |
Rule 33 – Value of Supply of Services in Case of a Pure Agent (Re-iteration)
This rule re-emphasizes that the value of services provided by a pure agent to the extent of reimbursement of actual expenses shall be excluded from the value of the main supply, subject to the conditions in Rule 30.
Rule 34 – Rate of Exchange for Valuation
Applies when the transaction value is expressed in foreign currency.
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Rule: The value shall be converted into Indian Rupees using the RBI’s reference rate for that currency on the date of supply.
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If no reference rate is available, the value shall be converted using the exchange rate notified by CBIC (Central Board of Indirect Taxes and Customs) on the date of supply.
Rule 35 – Value of Supply in Case of Pure Agent (Final Clarification)
This rule clarifies that where a supplier recovers reimbursements for expenses incurred on behalf of the recipient and such expenses are in the nature of supply (e.g., the supplier provides ancillary services), then such reimbursements shall be included in the value of supply. Only pure agent expenses (no supply) are excluded.
Transaction Value as the Basis of Valuation:
Under Section 15 of the CGST Act, 2017, the value of a taxable supply is generally based on the transaction value. Transaction value means the price actually paid or payable for the supply of goods or services when the supplier and recipient are not related, and the price is the sole consideration for the supply. It forms the basis for calculating GST liability in most business transactions. Using the actual transaction price ensures fairness, transparency, and uniformity in tax calculation. It also simplifies GST compliance by providing a clear and reliable method for determining the taxable value.
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Conditions for Accepting Transaction Value
Transaction value is accepted as the taxable value only when certain conditions prescribed under the GST law are satisfied. The supplier and the recipient should not be related persons, and the price should be the sole consideration for the supply. If these conditions are fulfilled, the actual amount charged becomes the value on which GST is calculated. However, where the parties are related or additional consideration is involved, the transaction value may not be accepted, and valuation is determined according to the GST Valuation Rules. These conditions ensure fair and accurate taxation.
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Inclusions in Transaction Value
The transaction value includes all amounts that the supplier is liable to pay but are incurred by the recipient and not included in the invoice price. It also includes incidental expenses such as packing charges, commission, freight, loading, insurance, interest or late fees for delayed payment, subsidies directly linked to the price (excluding Government subsidies), and any taxes other than GST charged separately. Including these components ensures that the taxable value reflects the complete consideration for the supply. Proper inclusion of these elements results in accurate GST calculation and compliance with Section 15 of the CGST Act, 2017.
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Exclusions from Transaction Value
Certain amounts are excluded from the transaction value under the GST law. GST, CGST, SGST, UTGST, IGST, and Compensation Cess charged on the invoice are not included in the taxable value. Discounts given before or at the time of supply and recorded in the invoice are deductible. Post supply discounts are also excluded if they are established under a prior agreement and the recipient reverses the related Input Tax Credit where applicable. These exclusions ensure that GST is charged only on the actual value of the supply.
- Transaction Value in Normal Business Transactions
In most business transactions, GST is calculated on the transaction value because it represents the actual price agreed upon between the supplier and the recipient. This method is simple, transparent, and easy to apply in day to day commercial activities. It reduces valuation disputes and enables businesses to calculate tax accurately without following complex valuation methods. Since the transaction value reflects the true commercial consideration, it serves as the standard basis for GST valuation in ordinary business dealings where the prescribed conditions are satisfied.
Exemptions under GST:
GST exemption refers to the non levy of GST on specified goods or services as notified by the Government under the CGST Act, 2017. When a supply is exempt, the supplier is not required to collect GST from the recipient on that supply. Exemptions are provided to reduce the tax burden on essential goods and services, promote social welfare, encourage specific sectors of the economy, and support public interest. Businesses dealing exclusively in exempt supplies are generally not required to obtain GST registration, subject to the prescribed conditions. However, Input Tax Credit (ITC) is generally not available on inputs used for making exempt supplies.
Exempt Goods under GST:
1. Fresh Fruits and Vegetables
Fresh fruits and vegetables, other than those specifically processed or packaged as notified, are generally exempt from GST. This exemption helps keep essential food items affordable for consumers and supports the agricultural sector by reducing the tax burden on basic produce.
2. Milk and Dairy Products
Fresh milk is exempt from GST. Certain dairy products are also exempt, subject to the applicable GST notifications and conditions. This exemption ensures that essential nutritional items remain affordable and reduces the cost of daily household consumption.
3. Food Grains
Specified unbranded food grains such as rice, wheat, maize, and pulses are generally exempt from GST, subject to applicable notifications. The exemption helps reduce the cost of staple food items and supports food security by making essential commodities more affordable.
4. Fresh Meat and Eggs
Fresh meat, fish, poultry, and eggs that are not frozen, branded, or otherwise taxable under applicable notifications are generally exempt from GST. This exemption benefits consumers by reducing the cost of essential protein rich food products.
5. Agricultural Produce
Specified agricultural produce supplied in its natural form is generally exempt from GST. The exemption supports farmers, reduces marketing costs, and promotes agricultural activities. It also helps ensure that primary agricultural products reach consumers at reasonable prices.
6. Salt
Common salt is generally exempt from GST under the applicable exemption notifications. Since salt is an essential household commodity used daily, the exemption helps maintain affordability and prevents an unnecessary tax burden on consumers.
7. Newspapers
Printed newspapers are generally exempt from GST. This exemption encourages the circulation of news and information, supports the print media industry, and helps ensure that newspapers remain affordable and widely accessible to the public.
8. Human Blood and Organs
Human blood and human organs meant for medical treatment and transplantation are exempt from GST. This exemption supports healthcare services, promotes life saving medical procedures, and ensures that patients are not burdened with additional indirect taxes on these essential medical supplies.
Exempt Services under GST:
1. Healthcare Services
Healthcare services provided by eligible clinical establishments, authorised medical practitioners, or paramedics are generally exempt from GST, subject to the applicable exemption notifications. This exemption reduces the cost of medical treatment and ensures that essential healthcare services remain affordable and accessible to the public.
2. Educational Services
Specified educational services provided by recognised educational institutions are exempt from GST. These include services relating to education, examinations, and certain associated activities, subject to prescribed conditions. The exemption promotes education by reducing the tax burden on students and educational institutions.
3. Agricultural Services
Certain services relating to agriculture, such as cultivation, harvesting, threshing, plant protection, and storage of agricultural produce, are exempt from GST. These exemptions support farmers, reduce agricultural costs, and encourage the development of the agricultural sector in India.
4. Charitable Activities
Specified charitable activities carried out by eligible charitable or religious organisations are exempt from GST, subject to the conditions prescribed under the exemption notifications. The exemption supports social welfare, public service, and humanitarian activities by reducing the financial burden on charitable institutions.
5. Services by the Reserve Bank of India
Services provided by the Reserve Bank of India (RBI) are exempt from GST under the applicable provisions. This exemption recognises the RBI’s role as the country’s central bank and ensures the efficient performance of its monetary, regulatory, and financial functions without indirect tax liability.
6. Funeral and Burial Services
Services relating to funerals, cremation, burial, and mortuary facilities are exempt from GST. The exemption ensures that families are not burdened with additional indirect taxes during difficult circumstances and supports the provision of essential funeral services.
7. Public Transportation Services
Specified public transportation services, including transport by non air conditioned contract carriages and certain passenger transport services, are exempt from GST, subject to applicable notifications. These exemptions help keep public transport affordable and encourage the use of mass transportation.
8. Services by Courts and Tribunals
Services provided by courts, tribunals, and judicial authorities in the discharge of their legal functions are exempt from GST. This exemption ensures that the administration of justice remains free from indirect tax and supports access to the legal system for all citizens.
Absolute Exemption under GST:
Examples of supplies generally covered by absolute exemption include specified fresh agricultural produce, healthcare services, educational services, and other goods or services notified by the Government. The availability of exemption depends on the relevant GST notifications and the prescribed conditions.
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