Value of Supply Under GST (Section 15): What Goes Into the Taxable Value

The short answer

GST is charged on the value of supply, also called the taxable value. Section 15 of the CGST Act says it is normally the transaction value — the price actually paid or payable — plus certain amounts listed in Section 15(2), minus discounts that meet Section 15(3). Only when the transaction value cannot be used (related persons, barter, and so on) do you turn to the valuation rules, Rules 27 to 35 of the CGST Rules.

The same Section 15 applies to inter-State supplies under the IGST Act, so the method is the same whether you charge CGST + SGST or IGST (see place of supply).

Step 1 — the transaction value (Section 15(1))

The transaction value is the price actually paid or payable for the supply. It is accepted as the value when both conditions hold:

• the supplier and the recipient are not related, and
• the price is the sole consideration — nothing else, in money or kind, is given for the supply.

If either condition fails, the transaction value is not rejected outright; the valuation rules decide the value instead (Step 4).

Step 2 — add these amounts (Section 15(2))

Include	What it means in practice
Other taxes, duties, cesses, fees and charges	Levies under laws other than the GST Acts, when the supplier charges them separately. GST and GST compensation cess are not added.
Amounts the supplier owes but the buyer pays	Any amount the supplier is liable to pay for the supply that the recipient pays instead and that is not in the price.
Incidental expenses	Commission, packing and anything else the supplier charges for work done at or before delivery — for example, freight when the supplier arranges delivery and bills it in the same invoice.
Interest, late fee or penalty for delayed payment	If the buyer pays late and you charge interest, that interest is part of the value of the original supply and taxed at the same rate.
Subsidies directly linked to the price	Subsidies from private parties that are tied to the price are added. Subsidies from the Central or State Governments are not.

Step 3 — leave out these discounts (Section 15(3))

• Discount at or before the supply: excluded if it is recorded in the invoice. A trade discount printed on the bill reduces the taxable value directly.
• Discount after the supply: excluded only if it was agreed at or before the supply, is linked to the specific invoices, is given through a credit note under Section 34, and the recipient reverses the input tax credit on it. A discount that fails these tests does not reduce the value — the supplier can still give it as a commercial credit note without GST.

"Buy one, get one free" offers are not treated as a free supply of the second item: the price paid is for both, and the tax is on that price (Circular 92/11/2019-GST).

A worked bill

Item	Amount (₹)
Goods	1,00,000
+ Packing charged by the supplier	2,000
+ Freight (supplier delivers, billed in the invoice)	3,000
− Trade discount shown in the invoice	5,000
Taxable value	1,00,000
GST at 18%	18,000

Two months later the buyer pays late and you charge ₹500 interest under the contract. That ₹500 is added to the value of the supply and GST at 18% (₹90) is charged on it — usually through a debit note or invoice for the interest.

Step 4 — when the transaction value can't be used (Rules 27–35)

Rule	Situation	Value
27	Consideration not wholly in money (barter, exchange)	Open market value; else money + money value of the non-cash part; else value of like supplies; else cost or residual method
28	Related persons and distinct persons (e.g. branches with separate GSTINs)	Open market value; or, if the recipient resells the goods as such, 90% of the price the recipient charges its unrelated customers. If the recipient can claim full ITC, the invoice value is accepted.
29	Supply through an agent	Open market value, or 90% of the price the agent charges its unrelated customers
30	No other method works	Cost of production or provision + 10%
31	Still no value	Reasonable means consistent with Section 15 (residual method)
32	Special cases	Money changers, air travel agents, life insurance, second-hand goods (margin), vouchers
33	Pure agent	Expenses incurred as a pure agent are left out if all conditions are met

Related persons (Explanation to Section 15) include directors or officers of each other's businesses, partners, employer and employee, a person holding 25% or more of the voting shares of both, one controlling the other, both controlled by a third person, and members of the same family.

Where the value shows up

• GSTR-1: the "taxable value" column for every B2B invoice, B2C summary and credit or debit note.
• e-Invoice: the "assessable value" of each line item.
• GSTR-3B Table 3.1: the total taxable value for the month, which now comes straight from GSTR-1.

Common mistakes

• Leaving freight and packing out of the taxable value when the supplier bills them in the same invoice.
• Reducing the value for a year-end discount that was never agreed before the supply or not linked to invoices.
• Forgetting GST on late-payment interest charged to customers.
• Using a "family price" for a related buyer without checking Rule 28.
• Adding government subsidies to the value — they are excluded.

Practise it before you do it for real

On IndIaTaxSim, a safe copy of the GST portal, you raise tax invoices with discounts and charges, issue debit and credit notes, and see the taxable value flow into GSTR-1 and GSTR-3B. Modules 5, 6 and 10–13 of the GST Portal Walkthrough cover invoices, notes and GSTR-1, and the GST Practice Lab follows one family business through the same steps. Related guide: time of supply (when the tax is due).