In an economy, on consumption of goods/ services, each type of tax levied is subject to respective calculation metrics. If we refer to the pre-GST taxation system, the value of goods/ services are evaluated in various ways. This post is an attempt to explain how the taxes levied pre-GST were calculated, and how GST on goods/ services will be calculated henceforth (post-GST).
Valuation of goods and services Pre-GST
For example, Laxman Electronics Ltd, provides AC spare parts to GKB AirConditioners Ltd for Rs: 6,000. The MRP of these spare parts however is Rs: 10,000. According to the current taxation system, the invoice that is issued to GKB AirConditioners Ltd will reflect the below mentioned tax calculation.
Valuation of goods and services Post-GST
We have used the same example, as mentioned above, to illustrate the method of valuation of goods and services in the GST regime:
Tax levied is GST of 28% on air conditioner spare parts. Since GST is levied on the price payable, which in the above mentioned table is Rs. 6,000, hence the total tax calculated is also on the same transaction value, and not MRP.
Valuation of goods and services Post-GST, with discounts and other expenses
For example, Laxman Electronics Ltd, provides Window Air Conditioners to GKB AirConditioners Ltd., for Rs: 30,000. And, further adds a discount of 1%, and packing charges of Rs: 3000. He further offers a 0.5% discount, which is subject to conditions, such as the payment should reach him (Laxman Electronics Ltd) before the 30th date of the month. Based on these parameters, mentioned below are how the invoice details would reflect on the invoice issued to GKB AirConditioners Ltd :-
In the invoice, the packing charges are included in the transaction value i.e. Rs: 30,000. In case if there are any other incidental expenses such as parking cost, courier cost , etc., it has to be included on the transaction value – before, or at the time of supply of goods or services. The discount too, will be calculated on the transaction value i.e. Rs: 30,000.
Remember the 0.5% discount that was offered to GKB AirConditioners Ltd if the payment in made before the 30th date of month the invoice is issues? Well, GKB AirConditioners Ltd., cannot deduct this from the invoice. As a rule under GST, discount given before or at the time of supply, and which is recorded in the invoice, can be deducted from the transaction value. But, if the discount is given after the invoice is issued (such as 0.5% in this case), the amount can be deducted from the transaction value and Laxman Electronics Ltd can issue a credit note to GKB AirConditioners Ltd stating these tax valuations —
- 0.5% of Rs 30,000 = Rs 150
- Rs 150 + 27 (GST@ 18% on Rs 150) = Rs 177
Hence, Rs, 177 must be deducted from the transaction value and the same must be linked to the relevant tax invoice.
What are some other Types of Discounts and what will be their Effect on Transaction Value?
- If the discount is given before or at the time of supply, and is recorded in the invoice, it can be claimed as deduction from transaction value (such as 1% discount in the above example).
- If the discount is given after supply, but agreed upon before or at the time of supply, it can be claimed as deduction from transaction value and can also be specifically linked to relevant invoices (such as 0.5% in the above example).
- If the discount is given after supply, and not known at the time of supply, it cannot be claimed as deduction from transaction value.
What are the Charges/expenses related to Supply and what will be their Effect on Transaction Value?
- Many-a-times, there could be incidental expenses such as packing, parking fee, commission etc, it can be included in the transaction value.
- If there is any sort of interest/late fee/penalty fee charged by the supplier for delayed payment, it can be included in the transaction value.
- If there are any subsidies, excluding those provided by the Central and State government, they can be included in the transaction value.
- Any tax other than GST is to be included in the transaction value.
- Any amount payable by supplier, but incurred by receiver, should be mutually agreed upon and included in the transaction value.
Understand more about supply of Goods and Services under GST regime here.