Valuation rule under GST Specific Businesses

Normally, GST requires that tax be computed on an ad-valorem basis—that is, as a percentage of the value of the supply of goods and services. In most cases, the invoice value serves as the taxable value.

For the following five specific businesses, the GST rules prescribe alternative valuation methods. These methods are optional; the supplier may, at their discretion, choose to follow the normal valuation rules.

1. Transactions Involving Buying or Selling of Foreign Currency

Method 1

Case 1: When One of the Values Exchanged Is in Indian Rupees

The value of supply is calculated as the difference between the buying or selling rate of the currency and the RBI reference rate at the time of exchange, multiplied by the number of currency units.

Example:

On 22nd October 2019, Mr. Kumar converted USD 120 into INR at a rate of ₹68 per USD. The RBI reference rate at that time was ₹67.

Calculation: (68 – 67) × 120 = ₹120

GST: Will be levied on ₹120.

If the RBI reference rate is unavailable, the value shall be 1% of the gross INR amount provided or received.

Example (Alternate):

If the gross amount received is ₹8,160 and the RBI reference rate is not available, the value of supply is 1% of ₹8,160, i.e., ₹81.60, and GST will be levied on that amount.

Case 2: When Neither Currency Is Indian Rupee

Suppose USD 10,000 is converted into 5,000 POUNDS. Assume the RBI reference rate is ₹65 per USD, and ₹85 per POUND.

Conversion:
USD in INR = 10,000 × ₹65 = ₹6,50,000
POUNDS in INR = 5,000 × ₹85 = ₹4,25,000

Value of Taxable Service:
Use 1% of the lesser amount, i.e., 1% × ₹4,25,000 = ₹4,250

Method 2

This method may be adopted by the supplier, but the option cannot be changed for the remainder of the financial year.

Example:

Mr. Kumar exchanged USD 12,000 at a rate of ₹66 per USD.

Value of Currency Exchanged: 12,000 × ₹66 = ₹7,92,000

Calculation:
For the first ₹1,00,000: ₹1,000
For the remaining ₹6,92,000: 0.50% of ₹6,92,000 = ₹3,460
Total Value of Supply: ₹1,000 + ₹3,460 = ₹4,460

2. Service Performed by an Air Travel Agent

The value of supply for services provided by an air travel agent (such as booking tickets) is calculated as follows:

Domestic Travel: 5% of the basic fare
International Travel: 10% of the basic fare
Note: “Basic fare” refers to the component of the airfare on which commission is normally paid to the travel agent by the airline.

Example:

For Domestic Bookings:
Basic fare = ₹1,20,000
Value of Supply: 5% × ₹1,20,000 = ₹6,000

For International Bookings:
Basic fare = ₹3,50,000
Value of Supply: 10% × ₹3,50,000 = ₹35,000

Total Value of Supply: ₹6,000 + ₹35,000 = ₹41,000

3. Life Insurance Business

The value of supply for life insurance services is determined as follows:

(a) Policies with Benefits of Risk Coverage and Investment:
Taxable Value = Gross premium – Amount allocated for investment or savings (if disclosed to the policyholder).
Example: If the gross premium is ₹70,000 and ₹65,000 is allocated for investment, the taxable value is ₹5,000.

(b) Single Premium Annuity Policies:
Taxable Value = 10% of the single premium charged.

(c) Other Cases:
Taxable Value = 25% of the premium charged in the first year and 12.5% in subsequent years.
If the premium is solely for risk cover, the entire premium is taxable.

4. Valuation of Supply When Second-Hand Goods Are Bought or Sold

For persons dealing in second-hand goods (used goods with minor processing that does not change their nature):

When ITC Is Not Availed:
Value = Selling Price – Purchase Price
If the selling price is less than the purchase price, any negative value is ignored.

Example:
A company purchases a used car (original price ₹2,20,000) for ₹1,10,000 and, after minor repairs, sells it for ₹1,30,000.
Taxable Value: ₹1,30,000 – ₹1,10,000 = ₹20,000

When ITC Is Availed:
The taxable value is determined based on the normal valuation method. This applies to transactions on online platforms as well.

5. Valuation of Tokens, Vouchers, Coupons, or Stamps

The value of a token, voucher, coupon, or stamp (other than a postage stamp) is the monetary value of the goods or services that can be redeemed against it.

Example: If a meal voucher is valued at ₹1,800 and a customer exchanges it for goods worth ₹1,800, the value of supply is ₹1,800.

6. Value of Supply Between Distinct Persons

For taxable supplies between distinct persons (as defined by the need to obtain more than one GST registration), where input tax credit is available, the value of taxable supply shall be deemed NIL.

Example:
Mr. Raj, based in Pune, operates two branches—one in Pune and one in Mumbai. These branches have separate GSTINs. If the Pune branch supplies consultancy services to the Mumbai branch and input tax credit has been claimed on related expenses (such as telephone charges, rent, and internet), the value of taxable supply for that service is NIL.

For further assistance or any queries regarding GST valuation or compliance, please feel free to contact DisyTax. We’re here to help you navigate GST complexities with clarity and confidence.