How to Calculate the Value on which GST should be Charged?

Last updated on August 18th, 2017 at 12:47 pm

With the advent of GST on 1st July, 2017, an immediate task on your hands is to generate accurate invoices that meet the criteria laid down for GST tax invoices. An important component of a GST tax invoice is the tax collected on the supply.

To calculate the correct value of tax to be collected on a supply, determining the GST rate applicable to the goods or services supplied is important. It is equally important to determine the correct value, on which tax at the prescribed rate is to be levied. If this is not done, it can result in unnecessary litigation, levy of interest, and the recipient could even lose input credit on the supply.

This is a guide for you to determine the correct value on which tax is to be levied on a supply. This value on which GST is to be levied, is called the transaction value.

Also Read: Supply of Goods and Services: What does it Mean?

Steps for calculating the value on which GST is to be charged in an invoice

1. Determine the price of the goods or service supplied
2. Add any additional charges, such as commission, packing
3. Add any other tax applicable on the supply, other than GST
4. Deduct discount shown in the invoice

Example: Rohan Pvt Ltd in Karnataka supplies 100 washing machines to a dealer, Dsouza & Sons, in Karnataka. The price of 1 washing machine is Rs. 30,000. Rohan Pvt Ltd charges Rs. 2,000 for packing of the washing machines and Rs. 8,000 for freight. A discount of Rs. 10,000 is given to Dsouza & Sons. The GST rate applicable to washing machines is 28%.
Let us arrive at the value on which GST is to be charged in this supply.

Particulars Quantity Rate Amount
Washing machines 100 30,000 30,00,000
Add: Packing charges 2,000
Add: Freight charges 8000
Less:discount (-)10,000
Taxable value 30,00,000
CGST @14% 4,20,000
SGST @ 14% 4,20,000
Total invoice value 38,40,000

The invoice for this will appear as shown below:

tax-invoice-calculation

How to treat additional charges or discounts incurred after the supply

Additions to value
  • Additional charges
  • Any amount payable by you (supplier) but incurred by the recipient, such as transportation
  • Interest/late fee/penalty charged on the recipient for delayed payment

In these cases, a debit note should be raised, linked to the original invoice and GST should be charged on the value.

Example: On the supply in the above example, Rohan Pvt Ltd charges penalty of Rs. 60,000 as Dsouza & Sons fails to make payment within the agreed period of 30 days.
Here, Rohan Pvt Ltd should raise a debit note against the above invoice, charging GST @ 28% (Rate applicable to washing machines) with calculation as shown below:

Particulars Amount
Penalty charged for delayed payment 60,000
CGST @ 14% 8400
SGST @ 14% 8400
Total debit note value 76,800

The debit note will appear as shown below

debit-note-values

Deductions from the value

• Discount given after the supply. If discount is given after the supply, ensure that it is agreed upon before the supply and can be linked to a specific invoice. Such a discount can be deducted from the transaction value. For this, raise a credit note for the discount amount and the applicable GST.

Example: As per the agreement of Rohan Pvt Ltd and Dsouza & Sons, if Dsouza & Sons make payment for the supply by online banking, Rohan Pvt Ltd will offer a discount of Rs. 2,000 on the invoice value. Accordingly, Mr. Dsouza makes payment by online banking. For the discount of Rs. 2,000 given, Mr. Rohan should raise a credit note against the original invoice with particulars as shown below:

Particulars Amount
Discount 2000
CGST @ 14% 280
SGST @ 14% 280
Total credit note value 2560

The credit note will appear as shown below:

revised-invoice-updated

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About the author

Pugal T & Anisha K Jose

17 Comments

  • SIR THANK YOU FOR THE CONTENT GIVEN BY YOU .
    BUT THE ONE QUESTION RAISED IN MY MIND THAT
    SIR I HAVE A MEDICAL STORE
    I HAVE A CLOSING STOCK OF ABOUT 50 LAKH RUPEES MEDICINES
    BUT I FACE DIFFICULTY IN KNOWING ABOUT HOW SHOULD I CHANGE THE RATES OF THE
    OLD STOCK .
    FOR EXAMPLE
    IF A ITEM RATE IS RS.50 AND ITS OLD TAX IS 14%
    BUT AFTER GST ITS GST RATE IS 28%
    SO AT WHAT PRICE I SHOULD SELL THE ITEM.
    PLEASE HELP ME.

  • agar maine kisi dealer ko monthly scheme diya hai , aur party 7-8 bill se goods purchase kiya hai, tho credit note kis tarah generate karna hai, kya every bill ka seperate credit generate karna parega.

  • we are purchase from smaller farmer from Hatbazar like.jute,Tobacco etc.and send it to inter estate and out side state.my big prob.is how it inter my purchase book.because all items are cash purchase from many smaller grower like 2kg.,4kg.5kg.in whole day 50 to150 kg.in different different rate.

  • while passing credit note entry we are facing problem i.e. we are debiting claim & discount ledger with IGST ledger & crediting party ledger due to weight loss in transit. But the same is not coming in the GSTR 1 Credit/Debit Notes instead its is coming No GST Implantation.

    Please note that as per Tally 1 way is sales & tax account should be debit but party is not returning in part or full goods instead its a loss & all losses should be debited also we cannot enable GST in Claim & Discount as under Statutory Details GST we will not come to understand in which nature of transaction available in Tally it will occur also Taxability & Tax Type also to be consider.

    Please suggest the best way to passout the entry so that it will comes under GSTR1 credit/debit note report.

  • In that case i want to configure the subtotal amount after adding and deducting charges i.e diaplayed before tax calculation. Its not provided in tally. Not sub total for each line. I need to display and print Sub total before tax calculation after adding and deducting any amount. Not in tax summary. pls clarify

  • sales incentive is target based but passed on in advance on each sales invoice on mutual understanding that buyer will achieve the target and cash discount is passed on each invoice on mutually agreed time frame. Now,
    If basic price can be reduced by sales incentive and cash discount before charging GST?
    If yes my basic price will come down less then Cost price and it will result in High Input and LOW output. My margin is small percentage of sales incentive. Please advise how to pass the sales incentive and cash discount

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