The Goods and Services Tax (GST) regime in India introduced a new way of determining tax liability. Understanding the concepts of “time of supply” and “value of supply” is crucial for businesses to ensure you pay the correct tax amount at the right time. To understand the concept is not easy for a newbie or whose background is not related to indirect taxes.
This is the reason, in this article you will learn the concept with illustration so that you know when and how you are liable to pay taxes under GST.
Time of Supply: When Does Your Tax Bill Come Due?
Imagine you’re a bakery selling delicious cookies. The “time of supply” refers to the exact point in time when your cookie sale is considered a taxable event under GST. This determines when you, as the seller, are liable to pay GST to the government.
Let’s learn the meaning of each section related to time of supply.
Section related to time of supply
Section 12 – Time of supply of goods
(1) The liability to pay tax on goods shall arise at the time of supply,
(2) The time of supply of goods shall be the earlier of the following dates
- the date of issue of invoice by the supplier or the last date
- the date on which the supplier receives the payment with respect to the supply
“the date on which the supplier receives the payment” shall be the date on which the payment is entered in his books of account or the date on which the payment is credited to his bank account, whichever is earlier.
(3) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis
- the date of the receipt of goods
- the date of payment as entered in the books of account
- the date immediately following thirty days from the date of issue of invoice or any other document,
(4) In case of supply of vouchers by a supplier, the time of supply shall be
- the date of issue of voucher, if the supply is identifiable at that point; or
- the date of redemption of voucher
(5) Where it is not possible to determine the time of supply under the provisions of sub-section (2) or sub-section (3) or sub-section (4), the time of supply shall––
- in a case where a periodical return has to be filed, be the date on which such return is to be filed; or
- in any other case, be the date on which the tax is paid.
(6) GST applies to late fees, interest, or penalties charged for delayed payments received from the buyer. The tax is levied on the date the supplier receives this additional amount.
Section 13 – Time of supply of services
(1) The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section.
(2) The time of supply of services shall be the earliest of the following dates, namely:—
- (a) the date of issue of invoice by the supplier, or the date of receipt of payment, whichever is earlier; or
- (b) the date of provision of service, if the invoice is not issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or
- (c) the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply:
Explanation: –
The supply of goods or services is generally considered to happen when it’s covered by the invoice or the payment is received, whichever comes first.
Determining Payment Receipt Date:
- The “date of receipt of payment” for GST purposes is the earliest of:
- The date the payment is recorded in the supplier’s business accounting books.
- The date the payment is credited to the supplier’s bank account.
(3) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis
- (a) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier;
- (b) the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier
where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of supply
(4) In case of supply of vouchers by a supplier, the time of supply shall be––
- (a) the date of issue of voucher, if the supply is identifiable at that point; or
- (b) the date of redemption of the voucher, in all other cases.
(5) Where it is not possible to determine the time of supply
- (a) in a case where a periodical return has to be filed, be the date on which such return is to be filed; or
- (b) in any other case, be the date on which the tax is paid
(6) GST applies to late fees, interest, or penalties charged for delayed payments received from the buyer. The tax is levied on the date the supplier receives this additional amount.
Value of Supply: How Much Tax Do You Owe?
Now that you know when the tax bill comes due (time of supply), let’s look at the “value of supply.” This refers to the amount on which you calculate the GST you owe. It’s essentially the total value the customer pays for the goods or services you provide.
Section 14 – Change in rate of tax in respect of supply of goods or services
- (a) in case the goods or services or both have been supplied before the change in rate of tax,
- If the invoice is issued and payment received after the rate change, the time of supply is the earlier of invoice date or receipt date.
- If only the invoice is issued before the change, the time of supply is the invoice date or receipt date
- (b) in case the goods or services or both have been supplied after the change in rate of tax,-
- If the payment is received after the change but the invoice is issued before, the time of supply is the receipt date.
- If both invoice and payment happen before the change, the time of supply is the earlier of invoice date or receipt date.
- If the invoice is issued after the change but the payment is received before, the time of supply is the invoice date.
Special Conditions: –
The “date of receipt of payment” is considered the date the money is credited to your bank account, but only if it happens within 4 working days of the GST rate change.
If the credit takes longer than 4 working days, the receipt date is considered the date the payment is recorded in your business accounts.
Section 15 – Value of Taxable Supply
(1) The value of a supply of goods or services or both shall be the transaction value, where the supplier and the recipient of the supply are not “related” and the price is the sole consideration for the supply
(2) The value of supply shall include––
- Any taxes, duties, cess, fees levied (except GST itself and related acts).
- Supplier Costs Borne by Recipient: Any cost the supplier should pay but is charged to the recipient.
- Incidental Expenses: Packing, commission, or other charges by the supplier.
- Interest or penalty for late payment on the supply.
- Subsidies (except government) directly linked to the price who receives the subsidy
(3) The value of the supply shall not include any discount which is given
This applies if the discount is mentioned on the invoice you issue at the time of supply or before.
- Conditions of Discounts After Supply:
- The discount must be agreed upon before or at the time of supply.
- The discount must be clearly linked to a specific invoice.
- The recipient of the supply must reverse the input tax credit claimed on the discount amount
(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed
(a) persons shall be deemed to be “related persons” if––
- (i) such persons are officers or directors of one another’s businesses;
- (ii) such persons are legally recognised partners in business;
- (iii) such persons are employer and employee;
- (iv) any person directly or indirectly owns, controls or holds twenty-five percent. or more of the outstanding voting stock or shares of both of them;
- (v) one of them directly or indirectly controls the other;
- (vi) both of them are directly or indirectly controlled by a third person;
- (vii) together they directly or indirectly control a third person; or
- (viii) they are members of the same family;
(b) the term “person” also includes legal persons;
(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, however described, of the other, shall be deemed to be related.
(Companies are considered related for GST if one company acts as the sole agent, distributor, or concessionaire for the other company in their business dealings.)
Related CGST Rules
To arrive at the value of supply where price is not available is outlined in Rule 27 to 35 of the CGST Rules 2017. The said rules help anyone to determine value of supply but generally depend on basic 4 ways: –
Value of supply of goods or services where the consideration is not wholly in money
(a) the open market value of such supply
(b) the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply;
(c) the value of supply of goods or services or both of like kind and quality;
(d) the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by the application of rule 30 or rule 31 in that order.
Remember, GST is not included in the value of supply. You calculate the GST amount based on the final value of supply arrived at after considering all the above factors.
Read More: GST Filing Simplified: 10 Common Mistakes to Avoid
Illustration
Suppose, you sell a laptop and printer together and a single laptop costs Rs. 40,000 and printer costs Rs. 4,000. So, the value of supply will be considered as Rs.44,000 on GST will be charged.
Another example – Suppose, you sell a shirt at Rs. 130 per piece but a similar product is sold at Rs.150 per piece by your competitors. The tax officer has the authority to determine value as per open market and tax will be demanded by considering shirt price of Rs.150.
One more example – You sell a coffee table for free on purchase of a sofa. The GST will be calculated on the cost of the sofa and 110% of the manufacturing value of the coffee table. It means GST = Cost of sofa + 110% of cost of coffee table.
