In India, §15(1) of the Central Goods and Services Tax Act, 2017 (CGST Act) values a supply at its transaction value — but only where supplier and recipient are unrelated and price is the sole consideration. Fail either test and §15(4) hands the question to Rules 27 to 35 of the CGST Rules, 2017, where Rule 28's second proviso deems invoice value to be open market value wherever the recipient has full credit.
TL;DR for founders
Most of the time the value of a supply is simply what you charged. Two things break that. The first is anything extra the buyer paid on your behalf, interest you charged for late payment, or a packing charge you billed separately — all of it climbs back into the taxable value. The second is dealing with yourself: your own branch in another State, your parent abroad, the subsidiary whose loan you guaranteed. Those are supplies in law even when no money moves, and a rule rather than a price sets their value. The relief is that where the receiving entity can claim full credit, whatever you write on the invoice is accepted as the value — including nothing.
The default and the two conditions that hold it up
Transaction value under §15(1) is the price actually paid or payable for the supply. It survives only while both statutory conditions hold: the supplier and recipient are not related, and price is the sole consideration. These are cumulative and independent — a deep discount to an unrelated buyer paid entirely in money is still valued at the discounted price, while a full-price sale to a subsidiary is not.
Section 15(2) then forces five categories back into that value: non-GST taxes, duties, cesses and fees; amounts the supplier was liable to pay that the recipient incurred and that are not already in the price; incidental expenses including commission and packing, and anything charged at or before delivery; interest, late fee or penalty for delayed payment of consideration; and subsidies directly linked to price other than Central or State Government subsidies. The §15(2)(d) limb bites hardest on deferred-payment structures, where interest embedded in an annuity stream cannot be stripped out as exempt finance consideration.
Section 15(3) is the only exit. A discount is excluded if given before or at the time of supply and recorded in the invoice. A post-supply discount is excluded only where three conditions all hold: it was established in an agreement made at or before the time of supply, it is specifically linked to the relevant invoices, and the recipient has reversed the attributable input tax credit. Circular 92/11/2019-GST (CIR_92_2019) confirms a supplier may still issue a §34(1) credit note for a secondary discount that fails those tests — but such a note does not reduce the value of supply.
The discount chain, and one circular that no longer exists
The post-sale-discount question has moved three times and practitioners still cite the wrong link. Circular 112/31/2019-GST (CIR_112_2019) withdrew Circular 105/24/2019-GST ab initio on 3 October 2019 — meaning it is treated as never having been issued, for all purposes including pending assessments, audits and adjudications. A show-cause notice resting solely on that circular's reasoning is challengeable on that ground alone.
Circular 251/08/2025-GST (CIR_251_2025), effective 12 September 2025, sets the current position on three questions. A financial or commercial credit note does not reduce the supplier's output tax liability, so the recipient need not reverse credit attributable to the discount. A manufacturer-to-dealer post-sale discount is not consideration for the dealer's onward supply where the sales are principal-to-principal — unless the manufacturer has an agreement with a specific end customer for a discounted price and issues the credit note to give effect to it, in which case the discount is inducement consideration under §2(31). And routine dealer sales promotion is not a separate service to the manufacturer; only specifically-agreed advertising, co-branding, customisation or exhibition activity with clearly defined consideration is a distinct leviable supply.
Circular 178/10/2022-GST (CIR_178_2022) draws the adjacent line on payments that look like consideration but are not. The test is a necessary and sufficient nexus with an agreement to refrain from or tolerate an act under paragraph 5(e) of Schedule II. On that test liquidated damages, cheque-dishonour fines, statutory and regulatory penalties and bond forfeiture on premature resignation are not taxable; late-payment surcharges and booking-cancellation charges are, as supplies ancillary to the principal supply and taxed at its rate.
When transaction value fails: the Rules 27–35 ladder
Section 15(4) hands over to a graded set of rules, each with a defined trigger:
| Rule | Trigger | Method |
|---|---|---|
| 27 | Consideration not wholly in money | Open market value; else money plus money-equivalent; else like kind and quality; else Rule 30 or 31 |
| 28 | Related persons and distinct persons under the same PAN | Open market value; else like kind and quality; else Rule 30 or 31 — subject to the two provisos |
| 29 | Supply through an agent | Open market value or 90% of the agent's onward price to an unrelated customer |
| 30 | Where 27–29 fail | 110% of cost of production, manufacture or acquisition |
| 31 | Residual | Reasonable means consistent with §15 and the Chapter |
| 32–35 | Specified supplies | Forex, air-travel agent, life insurance, second-hand goods, vouchers; pure agent; rate of exchange; tax-inclusive value |
Rule 28's first proviso lets goods intended for onward supply as such be valued at 90% of the recipient's price to an unrelated end customer, at the supplier's option. The second proviso does the real work: where the recipient is eligible for full input tax credit, the value declared on the invoice is deemed to be the open market value. That single sentence disposes of most intra-group valuation disputes.
Veritect Legal AI
Related-party valuation demands almost always arise from the same officer move: imputing a notional value where the group charged nothing. CBIC has closed that move three times. Circular 199/11/2023-GST (
CIR_199_2023) held that for cross-State head-office-to-branch supplies between distinct persons under §25(4), the §31 invoice value is deemed open market value where the branch has full credit, non-issuance of an invoice is acceptable with value deemed nil, and head-office salary cost is not mandatorily includible — even where the branch is not fully credit-eligible. Circular 210/4/2024-GST (CIR_210_2024) carried the same rule across the border to services from a foreign affiliate valued through the recipient's §31(3)(f) self-invoice. Circular 218/12/2024-GST (CIR_218_2024) barred imputation of a notional processing fee on an intra-group loan where consideration is exclusively interest or discount. Veritect Legal AI holds all three circulars alongside the Rule 28 text and its provisos, so a query such as "can the department impute a value on unbilled group IT services to a branch making exempt supplies" resolves against the operative clarification rather than a field practice.
Corporate guarantees, cross-charge and the mandatory ISD boundary
Corporate guarantee. Rule 28(2), inserted by Notification 52/2023-Central Tax (CGST_52_2023) and amended retrospectively from 26 October 2023 by Notification 12/2024-Central Tax (CGST_12_2024), fixes the value at 1% per annum of the amount guaranteed, or the actual consideration, whichever is higher. Circular 225/19/2024-GST (CIR_225_2024) resolves the mechanics: the base is the amount guaranteed, not the loan disbursed; a domestic intra-group guarantee is on forward charge with a §31 invoice, a foreign-to-domestic guarantee on reverse charge; a fixed-term guarantee is discharged upfront at issuance, with renewals treated separately; a loan takeover without a fresh guarantee attracts nothing; and Rule 28(2) does not apply to export of guarantee services to a foreign recipient.
Cross-charge against ISD. CIR_199_2023 treated the Input Service Distributor route under §20 as optional, leaving a head office free to issue §31 tax invoices instead. That freedom has narrowed. Sections 11 and 12 of the Finance Act (No. 1), 2024, which recast §2(61) and §20 to require third-party common input services to be distributed through the ISD mechanism, were commenced on 1 April 2025 by Notification 16/2024-Central Tax (CGST_16_2024), and Notification 12/2024-Central Tax (CGST_12_2024) substituted Rule 39(1) with the operative distribution machinery — same-month distribution, pro-rata allocation on State turnover using the formula C1 = C × (t1 ÷ T), separate distribution of eligible and ineligible credit, and IGST distributed as IGST while CGST and SGST convert to IGST for an inter-State recipient. The boundary that survives is by nature of the cost: third-party common input services flow through ISD; internally generated services between distinct persons remain a cross-charge valued under Rule 28.
The special-valuation carve-outs
Four rules displace the ladder for defined goods and activities. Rule 31A, inserted by Notification 3/2018-Central Tax (CGST_03_2018), deems lottery value at 100/112 of face value for a State-run lottery and 100/128 for an authorised lottery, and betting or gambling at 100% of the face value of the bet. Rules 31B and 31C, inserted by Notification 51/2023-Central Tax (CGST_51_2023) from 1 October 2023, value online money gaming at the full amount deposited and casino supplies at the full purchase price of tokens or chips — refunds are not deductible and re-wagered winnings are not fresh consideration. Rule 31D, inserted by Notification 20/2025-Central Tax (CGST_20_2025) with companion Notification 19/2025-Central Tax (CGST_19_2025) and effective 1 February 2026, mandates retail-sale-price valuation for six categories of pan masala and tobacco goods, back-calculating tax as (RSP × rate%) ÷ (100 + rate%), with Rule 86B's 1% cash-payment restriction relaxed for non-manufacturers handling those goods. The CBIC valuation FAQ (FAQ_valuation-in-gst_2019) orients the ladder but predates all four carve-outs.
FAQ
Q: When does transaction value under §15(1) apply, and when does it fail?
A: Section 15(1) of the Central Goods and Services Tax Act, 2017 (CGST Act) values a supply at the transaction value — the price actually paid or payable — but only where two conditions hold together: the supplier and the recipient are not related, and the price is the sole consideration for the supply. Fail either and §15(4) pushes the valuation into Rules 27 to 35 of the CGST Rules, 2017. Rule 27 handles consideration not wholly in money through an open-market-value ladder; Rule 28 handles related persons and distinct persons registered under the same PAN; Rule 30 falls back to 110% of cost of production or acquisition; Rule 31 is the residual reasonable-means rule. The two conditions are cumulative, so a discounted arm's-length sale in pure money is still valued at the discounted price if §15(3) is satisfied.
Q: What must be added to the value under §15(2)?
A: Section 15(2) of the CGST Act adds five categories to the transaction value: taxes, duties, cesses and fees levied under any law other than GST itself; any amount the supplier is liable to pay but which the recipient has incurred and which is not already in the price; incidental expenses including commission and packing, and anything the supplier charges the recipient for at or before delivery; interest, late fee or penalty for delayed payment of consideration; and subsidies directly linked to the price, other than subsidies given by the Central or State Government. The delayed-payment limb is the one most often missed — Circular 178/10/2022-GST (CIR_178_2022) treats a late-payment surcharge as ancillary to the principal supply, taxable at the principal supply's rate.
Q: On what conditions is a discount excluded from the value of supply?
A: Section 15(3) of the CGST Act excludes a discount only in two situations. A discount given before or at the time of supply is excluded if it is duly recorded in the invoice. A post-supply discount is excluded only where all three conditions hold: it was established in an agreement entered into at or before the time of supply, it is specifically linked to the relevant invoices, and the input tax credit attributable to it has been reversed by the recipient. Circular 92/11/2019-GST (CIR_92_2019) confirms that a supplier may still issue a financial or commercial credit note under §34(1) for a secondary discount that does not meet those conditions — but such a note does not reduce the value of supply or the supplier's output tax liability.
Q: Does a commercial credit note for a post-sale discount require the recipient to reverse ITC?
A: No. Circular 251/08/2025-GST (CIR_251_2025) confirms that because a financial or commercial credit note does not reduce the supplier's output tax liability, the recipient is not required to reverse input tax credit attributable to that discount. The circular resolves two further questions: a manufacturer-to-dealer post-sale discount is not consideration for the dealer's onward supply where the sales are principal-to-principal and there is no manufacturer agreement with a specific end customer; and routine dealer sales promotion is not a separate service to the manufacturer, only specifically-agreed activities such as co-branding, advertising campaigns or exhibitions with defined consideration qualify as a distinct supply.
Q: How are supplies between related persons and distinct persons valued?
A: Rule 28(1) of the CGST Rules, 2017 applies an open-market-value ladder, but its second proviso is the operative rule in most corporate groups: where the recipient is eligible for full input tax credit, the value declared on the invoice is deemed to be the open market value. Circular 199/11/2023-GST (CIR_199_2023) applies this to cross-State head-office-to-branch-office supplies between distinct persons under §25(4), and holds that the cost of head-office employee salaries is not mandatorily includible in the value of internally generated services — even where the recipient branch is not eligible for full credit. Circular 210/4/2024-GST (CIR_210_2024) extends the same logic to services received from a foreign affiliate, where the value declared in the recipient's self-invoice under §31(3)(f) is deemed to be open market value, and may be nil where no invoice is issued.
Q: How is a corporate guarantee between group companies valued?
A: Rule 28(2) of the CGST Rules, inserted by Notification 52/2023-Central Tax (CGST_52_2023) and amended retrospectively with effect from 26 October 2023 by Notification 12/2024-Central Tax (CGST_12_2024), values the supply at 1% per annum of the amount guaranteed, or the actual consideration, whichever is higher. Circular 225/19/2024-GST (CIR_225_2024) settles eight points around it: the value is the amount guaranteed and not the loan disbursed; a domestic intra-group guarantee is on forward charge while a foreign-to-domestic guarantee is on reverse charge; a fixed-term guarantee is discharged upfront at issuance; a loan takeover without a fresh guarantee attracts no GST; and Rule 28(2) does not apply to the export of corporate-guarantee services.
Q: Are liquidated damages and cancellation charges subject to GST?
A: It depends on whether there is a nexus between the payment and an agreement to tolerate an act. Circular 178/10/2022-GST (CIR_178_2022) holds that liquidated damages for breach of contract are not taxable because they compensate for loss rather than pay for tolerating breach; cheque-dishonour fines, statutory and regulatory penalties, and bond forfeiture on premature resignation are likewise outside GST. Conversely, cancellation charges for transportation, hotel and travel bookings and late-payment surcharges are taxable as supplies ancillary to the principal supply, at the principal supply's rate — which may itself be nil. Fixed capacity charges for power form part of an exempt electricity supply and are not taxable.
Related on Veritect: Corporate guarantee — Rule 28(2) valuation and the 1% formula · Post-sale discounts and ITC reversal — Circular 251/2025 · ESOP, ESPP and RSU recharges from a foreign holding company
Sources
Primary CBIC and Government of India sources relied on for this explainer:
- CBIC Tax Information Portal — notification and circular text: taxinformation.cbic.gov.in
- CBIC GST portal (archival instruments and the Valuation FAQ manual): cbic-gst.gov.in
- GST Council — recommendations underlying Rule 28(2) and the ISD amendment: gstcouncil.gov.in
- CGST Act, 2017 — §§15, 20, 25, 31, 34: indiacode.nic.in
- Gazette of India — notification publication: egazette.gov.in
Corpus anchors: CGST_52_2023, CGST_12_2024, CGST_16_2024, CGST_03_2018, CGST_51_2023, CGST_19_2025, CGST_20_2025, CIR_92_2019, CIR_112_2019, CIR_178_2022, CIR_199_2023, CIR_210_2024, CIR_218_2024, CIR_225_2024, CIR_251_2025, FAQ_valuation-in-gst_2019.
This explainer is general information on Indian central GST law and is not legal or tax advice. Verify the operative rule text and effective dates for the period in question before acting.
Beyond this brief Preview
This article covers the framework. The full valuation picture includes the verbatim text of §15 with all five sub-sections, Rules 27 to 35 in sequence with both provisos to Rule 28 and the Rule 32 special-supply methods for foreign exchange, air-travel agents, life insurance, second-hand goods and vouchers, Rule 33's pure-agent conditions, the eight-issue table of Circular 225/19/2024-GST on corporate guarantees, the substituted Rule 39(1) distribution formula with its "relevant period" and "turnover" explanations, and the Rule 31D retail-sale-price schedule with its multiple-RSP and altered-RSP definitions. Veritect Legal AI holds all sixteen anchor instruments cited above in full text, supersession-tracked, so practitioners can resolve queries such as "what value applies to an unbilled intra-group management service where the recipient branch makes 40% exempt supplies" or "is a renewal of a five-year corporate guarantee a fresh supply under Rule 28(2)" against the operative sources rather than secondary summaries. Access through veritect.ai.