Consideration in GST

Consideration in GST

Consideration in GST is the basis for deciding upon the value of supply of goods or supply of services.

The revised draft GST Act,2016 defines “consideration” under Section 2(28) as below 

Section 2(28) “consideration” in relation to the supply of goods or services includes

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

PROVIDED that a deposit, whether refundable or not, given in respect of the supply of goods or services shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration for the supply;

Consideration Versus Supply

On perusal of the definition of consideration, various aspects have to be understood as below :

Consideration is must for 95% of supplies to be taxed, except for the specified transactions as detailed  under Schedule I to IV of Section 3 of the draft GST Act,2016.

Consideration is an obligation towards a supply. But, every payment cannot be lamented  as consideration towards the taxable supply.

Every Payment is Not Consideration

It must be noted that mere payment of any amount cannot be suo motu be considered as a consideration in lieu of a supply.

The act of mere payment, and/or undertaking to pay arising out of a contract towards any assistance, without getting anything in return or supply in any form in return cannot be called as consideration .

Treatment of Deposit verus Consideration

The golden rule is that deposits cannot be considered as consideration .

In otherwords, any amount taken as  deposit, whether refundable or not, and given in respect of the supply of goods or services shall not be considered as payment towards the said supply as consideration.

However,such payment becomes consideration only when the supplier adjust such deposit towards the same supply.