Value of supply and place of supply: what tax is charged on, and where

Before you can calculate GST you need two things: the amount the tax is charged on, and the place of supply, which decides whether CGST plus SGST or IGST applies. The rules below are the general ones. Rates and detailed provisions change, so confirm the current position on the official GST portal; the percentage used in the example below is for illustration only.

Taxable value: what is included

The value of supply is normally the transaction value, meaning the price actually paid, when buyer and seller are unrelated and price is the only consideration. On top of the basic price, the value includes charges the seller bills the buyer for, such as packing, freight arranged by the seller, insurance, and other taxes or duties except GST itself.

Discounts shown on the invoice at the time of supply are deducted before tax. A discount decided after the sale, with no prior agreement, cannot reduce the taxable value.

Example 1: goods priced at 10,000, packing 200, freight charged by the seller 300, trade discount on the invoice 500. Taxable value = 10,000 + 200 + 300 − 500 = 10,000. Suppose, for this example only, the applicable rate is 18%. Tax = 1,800 and the invoice total = 11,800.

Place of supply for goods

For goods that move, the place of supply is where the movement ends for delivery to the buyer. When a third party instructs delivery to someone else (a bill-to ship-to case), the place of supply is the location of the party who gave the instruction, not where the goods physically land.

Example 2: a seller in Tamil Nadu ships to a buyer in Tamil Nadu. Same state, so CGST and SGST. The same seller ships to a buyer in Karnataka: different state, so IGST. The total tax amount is identical; only the split changes.

Place of supply for services

The general rule for services to a registered buyer is the buyer's location. Specific services have their own rules: services relating to immovable property follow the property's location, restaurant and personal care services follow where they are performed, and admission to events follows the venue.

Example 3: an architect in Delhi designs a building in Pune for a client registered in Mumbai. The property rule applies, so the place of supply is Maharashtra, and IGST applies because the supplier is in Delhi.

Common mistakes and a practice habit

• Adding GST on top of GST by including it in the value.
• Deducting a post-sale discount that was never agreed in advance.
• Using the shipping address instead of the instructing party's location in a bill-to ship-to case.

Take five real or sample invoices and, for each, write the taxable value calculation in one line and the place of supply with the reason. Compare with what was actually charged.