Published 5 October 2026
A rate is a percentage of something. The previous guides settled whether there is a supply, where it is taxed and when. This one settles the something: the value on which the rate is applied.
Most of the time the answer is the price on the invoice. The difficulties sit in the exceptions, and they run in both directions. Freight added to an invoice, interest charged for late payment, or a cost the customer paid on the supplier’s behalf can increase the value. A discount can reduce it, but only if it meets conditions most people never read. And where buyer and seller are connected, the price agreed between them may be set aside altogether.
This guide covers section 15 of the CGST Act and the valuation rules made under it.
The starting point: transaction value
Section 15(1) fixes the value as the transaction value:
the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
The definition has two conditions, and both must hold. The parties must not be related, and the price must be the only consideration. Where either fails, transaction value is not available, and section 15(4) sends the valuation to the rules.
Where both hold, the agreed price governs. The Act does not ask whether the price was a good one. A supplier who sells at a loss to an unrelated customer, for money alone, pays tax on the price actually charged.
What the value must include
Section 15(2) adds five items to the price, whether or not the parties treat them as part of it.
Other taxes and charges. Any “taxes, duties, cesses, fees and charges” levied under any law other than the GST Acts and the Compensation Cess Act, “if charged separately by the supplier”. GST is not charged on GST, but it is charged on other levies passed on to the customer.
Costs the customer bore for the supplier. Any amount “that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient” and not included in the price. If a customer pays a freight bill that the contract made the supplier’s responsibility, the value includes it.
Incidental expenses. Commission, packing, and “any amount charged for anything done by the supplier in respect of the supply … at the time of, or before delivery”. Packing and forwarding charges billed separately are part of the value of the goods.
Interest and late fees. “Interest or late fee or penalty for delayed payment of any consideration”. The previous guide noted that these take their time of supply when received. Their value is part of the value of the original supply, and they bear its rate.
Some subsidies. Subsidies “directly linked to the price”, but not those provided by the Central and State Governments. The Explanation places the subsidy in the value of the supplier who receives it.
Discounts: two kinds, different conditions
Section 15(3) excludes discounts from the value, but only on conditions.
A discount given before or at the time of supply is excluded “if such discount has been duly recorded in the invoice”. A price reduction shown on the face of the invoice reduces the value. One agreed at the time but not recorded does not.
A discount given after the supply is where the conditions change. As the clause stands in force, it is excluded only if:
(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and (ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.
The first condition is the one that fails most often. A year-end volume rebate, agreed only after the sales it rewards, was not “established in terms of an agreement entered into at or before the time of such supply”. On these words, it does not reduce the value of those sales.
The clause is changing. The Finance Act, 2026 substitutes a new clause (b). It excludes a post-supply discount “if for such discount, a credit note has been issued by the supplier and input tax credit as is attributable to such discount has been reversed by the recipient of the supply, in accordance with the provisions of section 34”. The requirement for an agreement at or before the time of supply, linked to invoices, falls away. The Finance Act, 2026 also amends section 34 so that a credit note may be issued for such a discount.
Both changes come into force only on a date the Government notifies, under section 1(2)(b) of the Finance Act, 2026. As of October 2026, no such notification has been issued, and CBIC’s text records both as “yet to be notified”. Until they are notified, the existing clause, with its two conditions, governs.
Under either version, the recipient’s reversal of credit is a condition of the supplier’s exclusion. Section 34(2), as substituted from 1 October 2025, says the same from the other side. A supplier’s output tax is not reduced by a credit note where the “input tax credit as is attributable to such a credit note, if availed, has not been reversed by the recipient, where such recipient is a registered person”.
When transaction value is not available
Where the parties are related, or the price is not the sole consideration, section 15(4) provides that the value “shall be determined in such manner as may be prescribed”. Rules 27 to 31 of the CGST Rules do that, in order.
Who is related. The Explanation to section 15 deems persons related persons in eight cases. They include officers or directors of one another’s businesses, partners, employer and employee, and members of the same family. They also include cases of ownership or control: where any person holds “twenty-five per cent. or more of the outstanding voting stock or shares of both of them”, where one controls the other, or where both are controlled by a third person. A sole agent, sole distributor or sole concessionaire is also deemed related.
Distinct persons count too. Rule 28 applies the same valuation to supplies between establishments registered in different States, under section 25(4) and (5). As the supply guide explained, a branch transfer is a supply even without consideration, and rule 28 is what values it.
The rules in sequence. For supplies between related or distinct persons, rule 28 takes the open market value. Failing that, it takes the value of a supply “of like kind and quality”. Failing that, it takes cost or the residual method. For consideration not wholly in money, rule 27 runs a similar sequence. Its illustration: a phone sold for Rs 20,000 plus an old phone in exchange, where the phone’s price without exchange is Rs 24,000, is valued at Rs 24,000.
Rule 30 values on cost: “one hundred and ten percent” of the cost of production, acquisition or provision. Rule 31 is residual, “reasonable means consistent with the principles and the general provisions of section 15”. For services, a supplier may go straight to rule 31 and skip rule 30.
Two provisos to rule 28 matter in practice. First, where the recipient will resell the goods as such, the supplier may opt for 90 per cent of the price the recipient charges its own unrelated customers. Second, “where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value”. The second proviso reflects the logic of the tax: if the recipient can take back every rupee of tax as credit, the value placed on the transfer makes no difference to the revenue.
Corporate guarantees. Rule 28(2), inserted in October 2023, values a guarantee given to a bank on behalf of a related person in India at one per cent of the amount guaranteed per annum, or the actual consideration, whichever is higher. The proviso about full input tax credit applies here as well.
Costs recovered as a pure agent
Not every amount a supplier recovers from a customer is part of the value. Rule 33 excludes costs incurred as a pure agent of the recipient. The conditions are cumulative:
- the supplier pays the third party on the recipient’s authorisation
- the payment is separately shown on the invoice
- the third-party supply is in addition to the supplier’s own services
A pure agent, under the Explanation, is one who holds no title to what it procures, does not use it for its own interest, and recovers only the actual amount. The rule’s illustration is a firm incorporating a company. The Registrar’s fees are levied on the company, and when the firm recovers them, the recovery is “a disbursement and not part of the value of supply”.
The pure agent rule is narrower than it looks. A reimbursement of the supplier’s own costs, such as travel or accommodation incurred to perform the service, is not a pure agent recovery, because the supplier uses those services in its own interest. It is an incidental expense under section 15(2)©, and part of the value.
Values fixed by notification
Section 15(5) allows the Government to notify supplies whose value “shall be determined in such manner as may be prescribed”, notwithstanding transaction value. Rules 31A to 32 do this for particular supplies. Among them are lottery, betting, gambling and horse racing; money changing; air travel agents; life insurance; second-hand goods dealers; and tokens and vouchers. For these, the rules displace section 15(1) entirely.
Valuing a supply
The order of analysis is:
- Are the parties related or distinct persons, or is there consideration other than the price? If so, transaction value is not available. Go to rules 27 to 31, or to a specific rule if the supply is notified under section 15(5).
- If transaction value applies, start from the price actually paid or payable.
- Add anything section 15(2) requires: other levies charged separately, the supplier’s costs borne by the customer, incidental expenses, interest and late fees, and price-linked non-government subsidies.
- Deduct discounts only if they meet section 15(3). For discounts after supply, check which version of clause (b) was in force at the time.
- Exclude recoveries made as a pure agent, and only those meeting all three conditions in rule 33.
With supply, place, time and value settled, the series turns from the tax to the taxpayer. The next guide covers who must register.