Before GST can be calculated, you need a number to apply it to — that's where Section 15 comes in. It answers one simple question: what is the value on which GST is charged? Get this wrong in practice (or in the exam), and every calculation downstream is off.
The starting point is the transaction value — the price actually paid or payable between unrelated parties where price is the only consideration. Think of it as the invoice price in a normal arm's-length deal. But the law then layers on several additions and subtractions. What gets ADDED to value: (a) any non-GST taxes charged separately — say, Customs duty or Excise on petroleum — are included; (b) expenses the recipient bore on behalf of the supplier (called reimbursable expenses) — if Rajesh & Co. Pvt. Ltd. pays freight but the supplier was supposed to, that amount comes back into value; (c) incidental charges — packing, commission, handling fees billed by the supplier; (d) interest, late fee, or penalty for delayed payment — so if Mr. Sharma pays late and the supplier charges ₹5,000 interest, GST applies on that ₹5,000 too; and (e) third-party subsidies (i.e., subsidies NOT from Central/State Governments) — if a private body subsidises the price, that subsidy amount is added back to the supplier's value.
What gets EXCLUDED — Discounts: This is the most exam-tested part. A discount is excluded from value only if: for pre-supply discounts — it is recorded on the face of the invoice; for post-supply discounts — there must be a prior written agreement linking it to specific invoices, AND the recipient must reverse the ITC attributable to the discount. Miss either condition and the discount stays in the taxable value. Finally, when parties are related (employer-employee, 25%+ shareholding, same family, sole agent, etc.), transaction value may not be accepted and Rules 27–31 kick in for valuation.
Example 1 — Building the taxable value from scratch
Setup: Sharma Electronics sells a machine to an unrelated buyer. Invoice details:
- Basic price: ₹2,00,000
- Packing charges billed separately: ₹5,000
- Freight paid by buyer on supplier's behalf: ₹8,000
- Cash discount given on the invoice itself: ₹10,000
- Late payment interest charged: ₹2,000
- State Government subsidy embedded in price: ₹15,000 (already reduced from price)
- Private company subsidy received by supplier: ₹20,000
Working:
| Item | Amount |
|---|---|
| Basic price | ₹2,00,000 |
| (+) Packing charges [Sec 15(2)(c)] | ₹5,000 |
| (+) Freight borne by recipient [Sec 15(2)(b)] | ₹8,000 |
| (+) Late payment interest [Sec 15(2)(d)] | ₹2,000 |
| (+) Private subsidy [Sec 15(2)(e)] | ₹20,000 |
| (−) Invoice discount [Sec 15(3)(a)] | (₹10,000) |
| State Govt subsidy | NOT added — exempt |
| Taxable Value | ₹2,25,000 |
GST @ 18% = ₹40,500
---
Example 2 — Post-supply discount: included or excluded?
Setup: Ms. Iyer (supplier) gives a year-end discount of ₹30,000 to a dealer after the supply. There was a written agreement at the time of supply linking this discount to specific invoices. However, the dealer did NOT reverse the ITC on those invoices.
Working: For the discount to be excluded under Sec 15(3)(b), BOTH conditions must be met:
- ✅ Prior agreement linking to specific invoices — satisfied
- ❌ ITC reversal by recipient — NOT done
Since one condition fails, the ₹30,000 discount CANNOT be deducted.
Taxable value remains as originally invoiced. GST is NOT refundable on this ₹30,000.
📖 Bare Act text — Section 15, CGST Act 2017
(click to expand)
(1) The value of a supply of goods or services or both shall be the transaction value, which is 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.
(2) The value of supply shall include–––
(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;
(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;
(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;
(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and
(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.
Explanation.––For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.
(3) The value of the supply shall not include any discount which is given––
(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, 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.
(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.
(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.
Explanation.—For the purposes of this Act,––
(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 per cent. 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, howsoever described, of the other, shall be deemed to be related.