Barter, exchange offers and non monetary consideration
Where the price is not the only thing changing hands, the value is not the price.
Consideration under Section 2(31) includes any payment in money or otherwise, and the monetary value of any act or forbearance, in respect of the supply. Where the price is not the sole consideration, Rule 27 determines the value as the open market value, or the sum of consideration in money and the money value of the non monetary consideration, or the value of a like supply, or Rule 30 or 31 in that order. An exchange offer is therefore two supplies, each valued on its own footing.
Exchange offers
In a typical exchange offer the customer receives a discount on a new product against the surrender of an old one. There are two transactions: the supply of the new product, and the transfer of the old product by the customer.
Where the customer is an unregistered individual, the transfer of the old product is not a taxable supply, but its value is non monetary consideration for the new supply, so the value of the new supply is not the discounted price.
That is the department's position, and it is the reason exchange offers are audited. The counter argument, where available, is that the reduction is a genuine trade discount recorded in the invoice under Section 15(3)(a), with no valuation ascribed to the old item.
The distinction turns on how the offer is structured and documented. Where the old product is actually acquired, valued and resold, the non monetary consideration analysis is difficult to resist.
Barter and set off arrangements
A barter of goods or services between two registered persons is two supplies, each valued at open market value, each invoiced, each carrying tax and credit.
Netting arrangements, where two parties set off mutual obligations, do not eliminate the supplies. Both invoices must issue.
Advertising or sponsorship in exchange for goods, services in exchange for space, and similar arrangements are common and commonly unreported.
The credit position usually makes the arrangement revenue neutral, but the interest and penalty on unreported supplies is not.
The control
Identify arrangements where value flows without cash: exchange offers, barter, set offs, contra arrangements, free space or services in return for goods.
Value each leg and invoice both, even where the net cash flow is nil.
For exchange offers, document the structure deliberately, and decide between a discount structure and an acquisition structure with your eyes open.
Reconcile contra accounts annually; that ledger is where unreported barter sits.
What to do on Monday
Identify every arrangement where value flows without cash and list it for review.
Invoice both legs of a barter, even where the net cash flow is nil.
Document the exchange offer structure deliberately, with the valuation position recorded.
Reconcile contra accounts annually as a GST control, not only an accounting one.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Is an exchange offer discount excluded from value?
Only if it is genuinely a discount recorded in the invoice with no value ascribed to the surrendered item. Where the old item is acquired and valued, its value is non monetary consideration.
Do both parties in a barter issue invoices?
Yes. Two supplies, two invoices, tax and credit on each.
Does netting remove the supplies?
No. The set off is a settlement mechanism, not a substitute for the supplies.
How do we value non monetary consideration?
Under Rule 27, starting with open market value, and documenting the basis.
Is a free service received from a customer taxable in our hands?
It is consideration for what you supplied. Value it and include it.
In this cluster
- Valuation under Section 15: transaction value and its exceptions
- Rule 28 in practice: related party and distinct person supplies
- Corporate guarantees between group companies: the one percent rule
- Northern Operating Systems: secondment, and the notice that follows every expatriate
- Cross charge of common costs between branches
- Mandatory Input Service Distributor: the compliance rebuild
- Post sale discounts: the agreement requirement and the credit note trail
- Free of cost supplies, warranty replacements and moulds
- Reimbursements and the pure agent exclusion under Rule 33
- Liquidated damages, penalties and notice pay recovery
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.