Understanding Taxable Supply and Related Persons in GST - Explained

G S T CA.S.Chandrasekar CA.S.Chandrasekar

VALUE OF TAXABLE SUPPLY VALUE OF TAXABLE SUPPLY Section 15 Transaction value ie., Price actually paid or payable Supplier and Recipient are not related Price is the sole consideration for the supply Otherwise as per the method prescribed Supplies recommendation of GSTC as per the method prescribed notified by Government on

INCLUSIONS INCLUSIONS All levies Other Than GST paid Amount liable to be paid in relation to supply but incurred by the Recipient - and not included in the price

INCLUSIONS INCLUSIONS Incidental expenses : Commission & Packing charged separately Anything done in respect of the supply at the time or before the delivery

INCLUSIONS INCLUSIONS Interest, late fee or penalty for delayed payment Subsidies directly linked to prices o.t. provided CG / SG

EXCLUSIONS EXCLUSIONS Discount given before or at the time of supply Recorded in the invoice after the supply it is in the terms of agreement entered at or before the time of supply linked to relevant invoices ITC was reversed by the recipient

RELATED PERSONS RELATED PERSONS - - DEFINITION DEFINITION Officers & Directors Members of same family Partners Employer & Employee Related persons Together controls 3rd person Both Controls 25% or more controlled by 3rd person one person controls other

RELATED PERSONS RELATED PERSONS - - DEFINITION DEFINITION Family means : The spouse and children of the person and The parents , grand parents, brothers and sisters of the person if they are wholly or mainly dependent on the said person.

RELATED PERSONS RELATED PERSONS - - DEFINITION DEFINITION The term "person" also includes legal persons. Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.

RECOURSE TO RULES RECOURSE TO RULES value cannot be determined u/s 15(1) Price is not the sole consideration Supplier-recipient are related persons In case of notified supplies

RECOURSE TO RULES RECOURSE TO RULES If dealing by related persons Recourse to Rules even if the Supplier- Recipient relationship : Did not influence the price; Precedes agreement to the supply; Has no bearing on pricing; Has no bearing on Agreement to the Supply; Has no relevance to the Supply; Was to meet with different criteria or purpose

SPECIFIED CASES SPECIFIED CASES RULE 6 Sale of Foreign currency Booking of tickets for travel Insurance business Selling of second hand goods (no ITC availed) Redemption of vouchers notified persons

RESORTING TO RULES RESORTING TO RULES When Consideration is not wholly in money: Fully in kind Partly in Kind and Party in Money Open Market Value

OPEN MARKET VALUE OPEN MARKET VALUE open market value of a supply of goods or services or both means the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and price is the sole consideration, to obtain such supply at the same time when the supply being valued is made.

NOT WHOLLY IN MONEY NOT WHOLLY IN MONEY Open Market Value Consideration in Money + equivalent value of consideration not in money Value of Goods or Services of like kind and quality Not Possible Rule 4 ( cost + 10 % ) ; or Rule 5 ( BJ )

Illustration Illustration Catalogue price of TV 85000 Value of old TV exchanged 8000 Price negotiated & agreed 78000 Value of supply 85000 or 86000 ?? OMV - 85000

BEWTEEN DISTINCT / RELATED BEWTEEN DISTINCT / RELATED PERSONS (other than agents) PERSONS (other than agents) Open Market Value (OMV) Value of Goods or Services of like kind and quality Not Possible Rule 4 ( cost + 10 % ) ; or Rule 5 ( BJ ) other person able to take credit - Value declared in invoice - deemed to be OMV

Illustration Illustration Purchase of Pens - 4 L Cost of delivery 5 K Employee of the supplier is the spouse of the purchaser OMV 5.2 Lacs Value of supply ?? transaction value 4.05 lacs

SUPPLY MADE OR RECEIVED THROUGH AGENT OMV ; or at the option of the Supplier 90 % of the Price of like kind and quality supplied to an unrelated person for resale Not Possible Rule 4 ( cost + 10 % ) ; or Rule 5 ( BJ )

SUPPLY THROUGH AGENTS Illustration Price charged to Wholesalers 2.8 lacs Agent sells the goods at MRP 3 lacs Value of supply ?? 2.8 or 2.7

RESIDUARY METHOD Not possible to determine by above - Rule 4 110 % of the Cost of Production/acquisition of such goods or cost of provision of such services Supplier of services may for opt for Rule 5 disregarding this rule

RESIDUARY METHOD Not possible to determine by above - Rule 4 reasonable means consistent with the principles and general provision of section 15 and these rules.

SALE OF FOREIGN CURRENCY OPTION I Difference between the buying/ selling rate and RBI Reference Rate X Total Units of currency RBI Reference rate not available 1 % of the Gross amount of Indian Rupees transaction.

SALE OF FOREIGN CURRENCY OPTION I Indian Currency not involved : 1 % of lesser of Indian Rupees equivalent of each currency exchanged

SALE OF FOREIGN CURRENCY Option II Threshold Limit (Rs.) 250 to 1,00,000 Percentage 1 % of the gross currency exchanged 1,00,000 to 10,00,000 1,000+ % of the Gross currencies exchanged 10,00,00 and above 5,000 + 1/10 % s.to a maximum of 60,000

SALE OF FOREIGN CURRENCY Option I vs. Option II If Option II is exercised in a FY - option I cannot be opted for that FY

BOOKING OF TICKETS AIR TRAVEL AGENTS Domestic Bookings 5 % of the basic fare International Bookings 10 % of the Basic fare

LIFE INSURANCE BUSINESS Not Applicable if it is purely for life cover Gross Premium Charged Less : Amount allocated for Investment = XXX Value for the purpose of paying GST = XXX = XXX The above said fact to be intimated to the Policy Holder

LIFE INSURANCE BUSINESS Single Premium Policy O.T (investment policy) - 10 % of the Single Premium

LIFE INSURANCE BUSINESS All other Cases : I year - 25 % of the Premium Charged Subsequent years - 12.50 % of the premium charged

SALE OF SECOND HAND GOODS Sale as such or after minor processing No input credit is availed - Difference between the selling price and purchase price Value of supply is negative - it is ignored

TOKEN /VOUCHER / COUPON OR STAMP Money value of good or services redeemable

SPECIFIED SERVICE PROVIDERS For the services provided : by such class of service providers ( section 25) can be deemed to be Nil : Where No ITC is available on the other end.

PURE AGENT PURE AGENT RULE 7 (Exclusion) Applicable only to services supplied

VALUE OF SUPPLY - PURE AGENTS contract of supply (actual or implied) subsists between a third party and beneficiary of supply actual recipient uses the supply for the purposes of the beneficiary beneficiary of supply liable to pay third party (due to contract) beneficiary authorizes (actual or implied) payment to third party by actual recipient

VALUE OF SUPPLY - PURE AGENTS beneficiary aware that supply is by such third party and not by actual recipient claiming reimbursement invoice of actual recipient indicates separately the reimbursement claim actual recipient claims actuals only from beneficiary actual recipient supplies (goods or services or both) independent of the reimbursement supplies

VALUE OF SUPPLY - PURE AGENTS there is a payment made to third party by a payer CA pays the income-tax amount to the tax Department payer is a supplier of goods or services or both to a beneficiary (client) CA is otherwise providing tax consultancy services to the client (tax assessee) underlying obligation to pay third party is of the beneficiary (client) Obligation to pay the income-tax amount is always of the client (tax assessee)

VALUE OF SUPPLY - PURE AGENTS payment by payer is to discharge beneficiary s obligation toward third party third party enjoys recourse to beneficiary in case of non- payment by payer Payment of income-tax amount to tax department is deposited against PAN of client (tax assessee) even though the amount may be transferred from CA s bank account In case CA defaults in the payment to tax department, recovery action will lie only against the client (tax assessee) and never against the CA however much the CA may have contractual accepted with the client to pay tax promptly

VALUE OF SUPPLY - PURE AGENTS contract of supply (actual or implied) subsists between a third party and beneficiary of supply Only an obligation exists between client (beneficiary) and Government (third party) actual recipient uses the supply for the purposes of the beneficiary CA (recipient) uses the discharge of tax for benefit of client (beneficiary) beneficiary of supply liable to pay third party (due to contract) Client (beneficiary) liable to pay Government (third party)

VALUE OF SUPPLY - PURE AGENTS beneficiary authorizes (actual or implied) payment to third party by actual recipient Client (beneficiary) authorizes payment to Government (third party) by CA (recipient) beneficiary aware that supply is by such third party and not by actual recipient claiming reimbursement Client (beneficiary) aware that tax belongs to Government (third party) and not CA (recipient)

VALUE OF SUPPLY - PURE AGENTS invoice of actual recipient indicates separately the reimbursement claim CA (recipient) issues invoice for tax consultancy PLUS taxes paid actual recipient claims actuals only from beneficiary CA (recipient) issues invoice for taxes paid at actuals from client (beneficiary) actual recipient supplies (goods or services or both) independent of the reimbursement-supplies CA (recipient) supplies tax consultancy independent of reimbursement of tax claimed

RATE OF EXCHANGE Reference rate of RBI on the date on which POT arises in terms of section 12 or 13 (Time of supply)

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