Last updated: 11 September 2026. The taxable value on a GST invoice is not simply the price you agreed. Section 15 of the CGST Act starts with that price, adds five things back under sub-section (2), and lets only two kinds of discount out under sub-section (3). Get the additions wrong and the tax is short; get the discounts wrong and the deduction is disallowed years later. GSTR-1 for the August 2026 tax period is due Friday 11 September 2026 for monthly filers, and every taxable value in it comes out of this section.
Applicability Note: This guide is based on GST provisions applicable as of 11 September 2026. Section 15 is unamended since 1 July 2017 except for clause (b) of sub-section (3), whose substitution by the Finance Act, 2026 has not yet been brought into force. Always verify the current position on gst.gov.in or with a GST professional before taking action.
Who Should Care?
- Anyone charging freight, packing, installation or handling separately — those recoveries sit inside the value
- Manufacturers and distributors running discount schemes, where the choice of credit note decides whether the tax comes back
- Groups with related-party or branch supplies, where the internal price is not the value the rules accept
- Businesses receiving subsidies or price support from anyone other than the Central or a State Government
1. The Starting Point: Transaction Value Under Section 15(1)
Section 15(1) sets the default. The value of a supply is the transaction value — "the price actually paid or payable for the said supply" — but only where two conditions hold together: the supplier and recipient are not related, and the price is the sole consideration. Both, not either. Fail one and transaction value is not available at all, and you move to the rules in section 5 below.
"Related persons" is defined in the Explanation at the end of Section 15 and is wider than most people assume: officers or directors of one another's businesses, legally recognised partners, employer and employee, anyone holding 25% or more of the voting stock of both, control in either direction or through a third person, members of the same family, and sole agents or distributors of each other.
The sole-consideration condition catches ordinary commercial arrangements — a part-exchange, a barter element, a buyer obligation folded into the deal. Where money is not the whole story, Rule 27 takes over.
2. Five Things Section 15(2) Adds to the Price
Sub-section (2) has five clauses. Each pushes something back into the value even when it sits on a separate line of the invoice, or on no invoice at all.
| Clause | What gets added to the price |
|---|---|
| (a) | Taxes, duties, cesses, fees and charges under any other law, if charged separately — all but CGST, SGST, UTGST and compensation cess |
| (b) | Any amount the supplier was liable to pay for the supply that the recipient incurred instead, and which is not already in the price |
| (c) | Incidental expenses, including commission and packing, and anything the supplier does in respect of the supply at or before delivery |
| (d) | Interest, late fee or penalty for delayed payment of consideration for the supply |
| (e) | Subsidies directly linked to the price, excluding those given by the Central Government and State Governments |
Clause (d) is about interest on your customer's late payment, not interest you pay on late tax. Circular No. 102/21/2019-GST dated 28 June 2019 draws the line: penal interest charged by the seller on a delayed instalment is part of the goods' value "irrespective of the manner of invoicing", while penal interest charged by an independent lender on the buyer's loan is exempt interest and leaves that value untouched.
Clause (e) turns on who pays. A subsidy from the Central Government or a State Government stays out; one from a parent company, an industry board or a foreign principal comes in, if it is directly linked to the price. The Explanation to sub-section (2) settles whose return it lands in: the value of supply of the supplier who receives it.
What that looks like on one invoice
A machine is sold for ₹5,00,000 at 18%. The supplier bills ₹20,000 of installation and packing separately, passes on ₹8,000 of a municipal levy under another law, and the buyer directly pays a ₹12,000 testing fee that the contract made the supplier's obligation. A ₹15,000 discount appears on the invoice.
| Step | Amount |
|---|---|
| Price actually paid or payable — Section 15(1) | ₹5,00,000 |
| Add: incidental expenses — Section 15(2)(c) | ₹20,000 |
| Add: levy under another law — Section 15(2)(a) | ₹8,000 |
| Add: supplier's liability met by the buyer — Section 15(2)(b) | ₹12,000 |
| Less: discount recorded in the invoice — Section 15(3)(a) | (₹15,000) |
| Taxable value | ₹5,25,000 |
| GST at 18% | ₹94,500 |
Tax on ₹5,00,000 alone would have been ₹90,000. The adjustments move it by ₹4,500, and interest runs on the shortfall if an audit finds it later.
3. Discounts: The Two Tests in Section 15(3)
A discount leaves the value in only two situations. Under clause (a), a discount given before or at the time of supply comes out if it is "duly recorded in the invoice issued in respect of such supply". Under clause (b), a post-supply discount comes out only if two conditions are satisfied together:
"(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" — Section 15(3)(b), CGST Act, 2017
The first condition is the one that fails in practice. A year-end incentive decided in March cannot be squeezed into clause (b): the agreement did not exist when the supplies were made. A volume discount whose rate was agreed up front but whose amount is computed at year end can be — Circular No. 92/11/2019-GST dated 7 March 2019 treats staggered "buy more, save more" and periodic volume discounts established before or at the time of supply as excludable, provided the Section 15(3) parameters including the recipient's ITC reversal are met, while a discount not known at the time of supply is not excluded even though a commercial credit note may still be issued for it. So a discount clearing clause (b) travels on a tax credit note under Section 34 and your tax comes down; one that does not travels on a commercial or financial credit note, and the tax stays put.
Circular No. 251/08/2025-GST dated 12 September 2025 settled three questions argued for years:
- The recipient does not reverse ITC on a discount passed by a financial or commercial credit note — the transaction value was never reduced.
- A post-sale discount from manufacturer to dealer is not consideration for the dealer's onward sale, the two being principal-to-principal — except where the manufacturer has its own agreement with the end customer to supply at a discounted price, when it enters the overall consideration.
- It is not payment for a service unless the dealer performs specified promotional activities — advertising, co-branding, customisation, special sales drives, exhibitions or customer support — explicitly stated in the agreement with a defined consideration.
One procedural point has changed. Circular No. 212/6/2024-GST dated 26 June 2024 required suppliers to hold proof of the recipient's reversal — a Chartered Accountant or Cost Accountant certificate, or an undertaking. It was withdrawn by Circular No. 253/10/2025-GST dated 1 October 2025, which records that the procedure "shall not be required". The condition in Section 15(3)(b)(ii) survives; the paperwork stacked on top of it does not.
4. The Change Parliament Has Passed But Not Switched On
This is where guides written in the last six months go wrong. Clause (b) of Section 15(3) has been substituted by section 153 of the Finance Act, 2026, assented on 30 March 2026. The substituted clause drops the pre-existing agreement and the invoice linking altogether: a post-supply discount would leave the value wherever the supplier issues a credit note and the recipient reverses the attributable credit in accordance with Section 34. Section 154 makes the matching insertion in Section 34(1).
Neither section is in force. Section 1(2) of the Finance Act, 2026 brings sections 153 to 155 into effect only on a date the Central Government notifies, and CBIC's own repository still carries the amendment as "with effect from yet to be notified". Until that notification issues, the two conditions above are the law, and a discount agreed after the supply stays outside clause (b) however carefully the credit note is drawn.
One related change is live, and it runs the other way. The proviso to Section 34(2) was substituted with effect from 1 October 2025 by section 126 of the Finance Act, 2025, commenced by Notification No. 16/2025-Central Tax dated 17 September 2025. A supplier now gets no reduction in output tax liability on a credit note where a registered recipient availed the credit and has not reversed it — or, in other cases, where the incidence of tax was passed on. Your adjustment now depends on your customer's return.
5. When Transaction Value Is Displaced: Rules 27 to 31
Where Section 15(1) cannot apply, Section 15(4) sends you to Chapter IV of the CGST Rules. These are a sequence, not a menu — each is reached only when the one before it fails.
| Rule | When it applies | The value |
|---|---|---|
| Rule 27 | Consideration not wholly in money | Open market value; else money plus the money-equivalent if known at the time of supply; else like kind and quality; else Rule 30 or 31 |
| Rule 28 | Distinct persons under Section 25(4)/(5), or related persons | Open market value; else like kind and quality; else Rule 30 or 31 |
| Rule 29 | Goods supplied through an agent | Open market value, or at the supplier's option 90% of the price the agent charges an unrelated customer, where the agent will supply them on |
| Rule 30 | None of the above works | 110% of cost of production, manufacture, acquisition or provision |
| Rule 31 | Residual | Reasonable means consistent with the principles of Section 15; a supplier of services may opt for it ahead of Rule 30 |
One neighbour matters on ordinary invoices. Rule 33 keeps genuine pure-agent recoveries out of the value entirely, but only where three conditions are met together: the supplier pays the third party on the recipient's authorisation, the payment is shown separately on the invoice, and the procured supply is in addition to what the supplier provides on his own account.
6. Related Parties, Branches and the Corporate Guarantee Rule
Rule 28 covers distinct persons — separate registrations of the same PAN, including your own branch in another state — as well as related parties, even where no price was negotiated. Two provisos soften it: an optional 90% valuation where the recipient will supply the goods on as such, and, where the recipient is eligible for full input tax credit, the invoice value deemed to be the open market value. The second makes routine group cross-charges workable.
Rule 28(2) is the exception with a fixed formula. A corporate guarantee given to a bank or financial institution on behalf of a related person located in India is valued at 1% of the guarantee amount per annum, or the actual consideration, whichever is higher — inserted by Notification No. 52/2023-Central Tax dated 26 October 2023, with "per annum", the words "located in India" and a full-ITC proviso added by Notification No. 12/2024-Central Tax dated 10 July 2024 with effect from 26 October 2023. Read "whichever is higher" as a floor, not a ceiling. The rule is being litigated: in Torrent Power Ltd. v. Union of India (Gujarat High Court, R/Special Civil Application No. 12175 of 2024 and connected petitions, judgment dated 14 August 2026) the court upheld Rule 28(2) but held its deemed valuation cannot reach guarantees executed before the rule came into force. It also read down "whichever is higher", so a lower actual consideration can displace the 1% floor.
Key Takeaways
- Transaction value applies only where the parties are unrelated and the price is the sole consideration — both, or you are into Rules 27 to 31.
- Section 15(2) adds five things: other-law taxes charged separately, amounts the buyer paid that were your liability, incidental expenses, interest or late fee for delayed payment, and price-linked subsidies from anyone other than the Central or a State Government.
- A post-supply discount leaves the value only if it was agreed at or before the supply, linked to specific invoices, and the buyer reverses the credit. Otherwise the tax does not move.
- No supplier-side certificate is needed any more — Circular No. 253/10/2025-GST dated 1 October 2025 withdrew it, though the reversal condition stands.
- The credit-note version of Section 15(3)(b) is passed but not notified — section 153 of the Finance Act, 2026 awaits a commencement notification.
- Since 1 October 2025 a credit note reduces your tax only if a registered recipient who availed the credit reverses it — the substituted proviso to Section 34(2).
Frequently Asked Questions
Is freight charged separately on the invoice part of the GST value of supply?
Yes, where you arrange and recover it. Section 15(2)(c) covers incidental expenses and anything done by the supplier at or before delivery, and a separate line does not put it outside the value. The narrow exception is a genuine pure-agent recovery meeting all three conditions of Rule 33.
Can I reduce my GST if I give a discount after the sale?
Only if it was established by an agreement entered into at or before the time of that supply, is specifically linked to the relevant invoices, and the buyer reverses the attributable input tax credit — Section 15(3)(b). If it was not agreed up front, issue a commercial credit note: the value and the tax stay unchanged, and per Circular No. 251/08/2025-GST dated 12 September 2025 the buyer does not reverse credit on it either.
How is a branch transfer to my own GSTIN in another state valued?
Under Rule 28, because separate registrations of one PAN are distinct persons under Section 25(4): open market value, then like kind and quality, then Rule 30 or 31. Where the receiving branch is eligible for full input tax credit, the second proviso deems your invoice value to be the open market value — which is why most such cross-charges are accepted at invoice value.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. GST rules are subject to frequent changes through notifications and circulars. Please consult a qualified tax professional or verify the current provisions on the official GST portal (gst.gov.in) before making any compliance decisions.
Have a specific question about how to value a supply, a discount scheme, or a related-party cross-charge? Our GST experts can help → gstconsultancy.com