Valuation under Section 15: transaction value and its exceptions

Valuation is the quiet frontier. Groups lose more here than in classification, because nobody audits an intra group price until the department does.

What must be included

Any taxes, duties, cesses, fees and charges levied under any law other than the GST enactments, where charged separately.

Any amount the recipient is liable to pay in relation to the supply which the supplier has incurred and which is not included in the price. This is the limb that catches freight, insurance and installation borne by the supplier and recovered separately or not at all.

Incidental expenses including commission and packing, and anything done by the supplier at the time of or before delivery in respect of the supply.

Interest, late fee or penalty for delayed payment of consideration. This is the provision behind demands on delayed payment charges.

Subsidies directly linked to the price, excluding subsidies provided by the Central or State Government.

Discounts, and the 2024 change

Section 15(3)(a) excludes a discount given before or at the time of supply where it is recorded in the invoice.

Section 15(3)(b) excludes a post supply discount where it is established in terms of an agreement entered into at or before the time of supply and specifically linked to relevant invoices, and where the input tax credit attributable to the discount has been reversed by the recipient.

The requirement that the discount be established by a prior agreement was addressed by amendment, and the treatment of post sale discounts has changed. The current text and the applicable circular must be checked for the period, because the department applies the earlier position to earlier years.

The practical control is unchanged: the discount policy must exist in writing before the supply, and the recipient's reversal must be evidenced.

When the transaction value is displaced

Where the supplier and recipient are related, including distinct persons under Section 25, the value is determined under Rule 28.

Where the price is not the sole consideration, the value includes the money value of the non monetary consideration under Rule 27.

Where the value cannot be determined under those rules, Rule 30 provides for one hundred and ten percent of cost, and Rule 31 permits a reasonable means consistent with the principles of Section 15.

Rules 32 to 35 provide special mechanisms for specified supplies including foreign currency exchange, air travel agents, life insurance, second hand goods and lottery.

The valuation file

For every related party or distinct person supply, a note recording the basis of value, the rule applied, and the recipient's credit eligibility.

For discounts, the written policy, the agreement, the invoice linkage and the recipient's reversal confirmation.

For non monetary consideration, a valuation of what was received, with the working.

For cost based valuation, the cost sheet and the basis of the one hundred and ten percent computation, prepared contemporaneously rather than at audit.

What to do on Monday

1. List every recovery from customers other than the product price and test each against Section 15(2).

2. Put the discount policy in writing before the period it applies to, and collect reversal confirmations.

3. Prepare valuation notes for related party supplies at the time of supply, not at audit.

4. Keep the cost sheet where a cost based valuation is used.

Questions we are asked on this

Are delayed payment charges taxable?

Section 15(2)(d) includes interest, late fee or penalty for delayed payment in the value of the supply, at the rate applicable to the supply.

Is a government subsidy included in the value?

No. Subsidies provided by the Central or State Government are excluded; other subsidies directly linked to the price are included.

Can a post sale discount be excluded?

Only on the statutory conditions, including the linkage to invoices and the recipient's credit reversal. Verify the current text for the period.

Does the recipient's credit eligibility affect the value?

For related party supplies, yes. The second proviso to Rule 28 permits the invoice value to be taken as the open market value where the recipient is eligible for full credit.

Is freight part of the value?

Where the supplier arranges it in relation to the supply, it generally forms part of the value under Section 15(2). Where the recipient arranges it independently, it does not.

In this cluster

• 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
• Vouchers and gift cards: the amended treatment

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.