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Value of Supply Under GST When Consideration Is Not Paid Wholly In Money

There is a certain rule under GST that deals with the valuation of supply when consideration is not paid wholly in money. In this article, we will talk about the valuation rule dealing with the same.

Cases where Consideration is Partially Paid in Money

There are instances where the businesses came up with an innovative scheme where the recipient of goods or/and services needs to make some of the payment in cash whereas the remaining payment in consideration such as exchanging the second-hand product for a new one.

Valuation Rule when the consideration is not paid wholly in money

Generally, as per the valuation rule under GST, the money received from the buyer is considered as the value of supply. However, when the consideration is not wholly paid in money then in such scenario the value of supply shall be:

(i) The Open Market Value of the product or/and services supplied. Open Market Value is the full value of money not including the GST payable by the buyer at the time of supply providing that such supply is made between unrelated parties.

(ii) In case when the Open Market Value is not available then in such case the value of such supply shall be the sum of the total money paid in consideration and the money value of the non-monetary condition.

(iii) When above (i) and (ii) are not applicable then in such case the value of supply shall be based on the basis of the monetary value of the like kind and quality.

(iv) Supply of the same kind and quality means any supply made that shares the same characteristics, quality, quantity or functionality.

(v) In case If the supply value cannot be determined using the above clauses then in such case, the value of supply shall be either the value based on the cost, that is, cost of supply plus 10% mark-up or by using reasonable means consistent with the principles and general provision of the GST law, that is, best judgment method.

Let us understand this with two below-mentioned examples:

  1. XYZ Ltd supplied a 32 Inches LED TV for 15,000 after exchanging an old Colour TV. However, the current Open Market Value of the same TV is 20,000 INR. The supplied value of such TV will be 20,000 INR that is the open market value of the TV.
  2. ABC Ltd supplied a fully automatic washing machine for 30,000 INR in exchange for the washing machine manufactured by the recipient and the value of such washing machine at the time of supply is 5,000 INR. However, the open market value (OMV) of the fully automatic washing machine is not known. In this case, the supply value of the fully automatic machine will be 35,000 INR as in the case when the Open Market Value (OMV) is not available then in such case the value of such supply shall be the sum of the total money paid in consideration and the money value of the non-monetary item.