GST Valuation Rules explained: this guide covers what GST Valuation Rules means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Introduction to GST Valuation
The value of supply is the base on which GST is levied. Section 15 of the CGST Act, 2017 defines the value of a taxable supply, while Rules 27 to 35 of the CGST Rules, 2017 provide detailed valuation methods for specific situations where the transaction value cannot be determined under Section 15. Understanding these rules is critical for every registered person to compute correct tax liability.
Section 15 — Value of Taxable Supply
Under Section 15(1), the value of a supply of goods or services is the transaction value — the price actually paid or payable for the supply — when the supplier and recipient are not related and price is the sole consideration for the supply.
Inclusions in Value — Section 15(2)
The following are included in the value of supply:
| Inclusion | Example |
|---|---|
| Taxes, duties, cesses, fees and charges levied under any law (other than CGST/SGST/IGST/GST Compensation Cess) | Municipal tax, excise duty on tobacco products, customs duty on imported goods |
| Amount that the supplier is liable to pay but incurred by the recipient (not included in price) | Packing charges, commission paid by recipient on behalf of supplier |
| Incidental expenses — including commissions and packing charges by the supplier | Freight, insurance, installation charges charged by supplier |
| Interest, late fee, penalty for delayed payment | Interest charged on overdue invoice |
| Subsidies directly linked to the price (excluding government subsidies) | Subsidy from third party linked to the supply price |
Exclusions — Discounts
The following discounts are excluded from the value:
- Discount given before or at the time of supply — if recorded in the invoice (e.g., trade discount of 10%)
- Discount given after supply — if established in terms of an agreement entered into before or at the time of supply and can be specifically linked to relevant invoices, and ITC proportionate to the discount has been reversed by the recipient
Valuation Rules 27-35
When the value of supply cannot be determined under Section 15(1), the following rules apply:
Rule 27 — Value of Supply Between Related Persons or Distinct Persons
When supplier and recipient are related persons or are distinct persons (e.g., branches of the same entity in different states), the value is determined in the following order:
- Open market value of the supply
- If not available — value of supply of like kind and quality
- If not available — value determined by applying Rule 30 (cost plus 10% markup) or Rule 31 (residual method using reasonable means)
If the recipient is eligible for full ITC, the value declared in the invoice is deemed the open market value.
Rule 28 — Value of Supply Between Distinct Persons (Inter-Branch)
For supply between distinct persons (same PAN, different registrations — e.g., head office to branch in another state), the value is the open market value. If not available, the value as determined by the supplier is the value (provided the recipient is eligible for full ITC).
Rule 29 — Value of Supply When Consideration Is Not Wholly in Money
When consideration is partly in money and partly not:
- Open market value of the supply
- If not available — sum of the monetary consideration plus the money value of the non-monetary consideration
- If not determinable — value of supply of like kind and quality
- If still not determinable — Rule 30 or Rule 31
Rule 30 — Value Based on Cost
The value is 110% of the cost of production or manufacture or the cost of acquisition of goods, or the cost of provision of services.
Rule 31 — Residual Method
When value cannot be determined under Rules 27-30, it is determined using reasonable means consistent with the principles and general provisions of Section 15 and the rules. This is the catch-all provision.
Rule 32 — Special Valuation Rules
| Rule | Applicable To | Valuation Method |
|---|---|---|
| Rule 32(2) | Money Changers (Foreign Exchange) | Difference between buying/selling rate and RBI reference rate; or 1% of gross amount if RBI rate is unavailable |
| Rule 32(3) | Air Travel Agents | 5% of basic fare for domestic bookings; 10% of basic fare for international bookings |
| Rule 32(4) | Life Insurance Business | Gross premium minus amount allocated for investment (or 25% of premium for single premium policies, or 12.5% for other policies in subsequent years) |
| Rule 32(5) | Second-Hand Goods Dealers | Difference between selling price and purchase price; if negative, no tax is payable |
Rule 33 — Value of Supply of Services in Case of Pure Agent
When a supplier acts as a pure agent of the recipient, amounts recovered by the supplier towards expenditure incurred as pure agent are excluded from the value of supply, provided the conditions of Rule 33 are met (including that the supplier does not hold title to the goods/services procured as pure agent).
Rule 34 — Rate of Exchange for Foreign Currency
The rate of exchange for determining the value in rupees is the applicable reference rate notified by CBIC on the date of the time of supply.
Rule 35 — Value of Supply Where Token, Voucher, Coupon or Stamp Is Redeemed
When a supply involves redemption of a token, voucher, coupon or stamp, the value is the money value of the goods or services redeemable against such instrument.
Practical Example
Company A sells goods to Company B (a related party) at Rs 80,000. The open market value of similar goods sold to unrelated buyers is Rs 1,00,000. Under Rule 27, the value for GST purposes is Rs 1,00,000 (open market value), not Rs 80,000. GST is calculated on Rs 1,00,000.
However, if Company B is eligible for full ITC, then the invoice value of Rs 80,000 is deemed to be the open market value — no adjustment required.
Conclusion
GST valuation rules ensure that the correct value is used for computing tax liability, especially in transactions where the transaction value may not reflect the arm's length price. Section 15 provides the general framework, while Rules 27-35 address specific situations — related parties, non-monetary consideration, specialised industries, and agency arrangements. Understanding these rules prevents under-valuation risks and ensures compliance.
At TaxClue, our team of qualified CAs and GST professionals assists businesses with GST valuation, related party transaction compliance, and return filing. Contact us for expert assistance.