Understanding valuation under GST: When consideration is not in money

By Tejas Goenka

Valuation of goods and services is an important aspect which determines the amount of tax to be levied. If goods and services are undervalued, it leads to short-payment of tax, leading to non-compliance and resultant legal implications.

Overvaluation will result in loss of revenue for businesses by way of additional taxes.

The situation is simple when price is the sole consideration of supply, and both the supplier and the recipient are not related. But, how do we go about determining the value of supplies, when consideration is not in money?

Consideration not in money - Valuation under GST
In a normal scenario, transaction value can be applied as a method of valuation when price is the sole consideration for supply, and both the supplier and the recipient are not related.

However, in cases where price is not the sole consideration for supply or if supply happens between related persons or distinct persons (between two units belonging to the same PAN), the transaction value method cannot be applied. In such cases, different metrics have been defined under valuation rules to determine the taxable value of supply. The following are the various scenarios, a business may encounter:
a. Value of supply of goods or services where the consideration is not wholly in money
b. Value of supply of goods or services or both between distinct or related persons
c. Value of supply of goods made through an agent

For such type of supplies, the value should be derived by applying the following metrics:


If for any reason the above method cannot be applied for determining the value of supply, it will be determined by applying the cost of the product+ 10% or by using the residual method.

The writer is Executive Director, Tally.