GST Valuation for Exchange Rates & Tax-Inclusive Prices

If you’ve been following this GST valuation series from the beginning, you’ve probably noticed that most valuation rules focus on how to calculate the taxable value. But when it comes to foreign currency transactions and prices that already include GST, things work a little differently. This is where Rule 34 and Rule 35 come into the picture.

These two rules look tiny on paper, but they are extremely useful in practical GST work, especially for:

• Businesses issuing GST-inclusive invoices
• Overseas suppliers
• Importers and exporters
• Companies dealing with multiple foreign currency transactions
• E-commerce platforms
• Retailers who prefer tax-inclusive MRP pricing

In this blog, we’re going to break down these rules in a very simple, human way — just how you like it. You’ll understand exactly:

• When Rule 34 applies
• How to interpret exchange rates
• How to calculate backward GST
• What to do when invoice price already includes GST
• Common mistakes students make
• Practical examples

Let’s jump straight into it.

1. What Are Rule 34 and Rule 35 in GST?

These two rules sit at the end of the GST Valuation Rules chapter and act like supporting tools for special valuation scenarios.

Rule 34 → Rate of exchange for determination of value

Whenever supply involves foreign currency, Rule 34 tells you which exchange rate to use:

• For goods → Use Customs Exchange Rate
• For services → Use RBI Exchange Rate

Rule 35 → Value inclusive of taxes

If the invoice value already includes GST:

• Rule 35 helps us work backward
• GST must be extracted from the tax-inclusive price
• A simple formula is used to find the taxable value

So these two rules solve very specific problems.

2. Rule 34 – Rate of Exchange for Determining Value of Supply

Foreign currency transactions are one of the biggest headaches in valuation. Why?

Because businesses often:

• Issue invoices in USD, EUR, AED, GBP etc.
• Receive payments in foreign currency
• Convert currency on different dates
• Deal with fluctuating exchange rates

GST wants consistency. It doesn’t want every business using their own random currency conversion rate.

So Rule 34 provides a clear direction.

2.1 Rule 34(1): Supply of Goods

For goods, GST follows Customs Law, because customs already has a detailed system of exchange rates.

Which is basically:

This is the same rate used for:

• Imports
• Exports
• Customs valuation
• Bill of entry
• Shipping bill

GST simply borrows it.

Example 1 — Sale of Goods in USD

Indian supplier exports machinery to Dubai.

• Invoice value: USD 10,000
• Customs exchange rate notified: ₹84 per USD

Value in INR = 10,000 × 84 = ₹8,40,000

GST for export = Zero, but this value matters for documentation.

Example 2 — Import of Goods

Importer buys goods from USA.

• Invoice value = USD 5,000
• Customs rate = ₹83.50

Value for GST calculation = 5,000 × 83.50 = ₹4,17,500

Even though IGST is paid at customs, this value is important for ITC.

2.2 Rule 34(2): Supply of Services

Here, GST does not follow Customs law.

The RBI publishes daily reference rates for:

• USD
• EURO
• GBP
• JPY
• AUD
• And others

This ensures uniformity across service providers.

Example — Export of Services (RBI Rate Applies)

An Indian consultant raises an invoice for:

• Amount = USD 2,000
• RBI rate = ₹82.75

Value in INR = 2,000 × 82.75 = ₹1,65,500

If service is export → GST = 0 If service taxable → GST charged on 1,65,500

2.3 When Customs and RBI Rates Differ?

They usually do differ because:

• Customs revises rates fortnightly
• RBI updates rates daily

Rule 34 makes it extremely clear:

• Goods → Customs rate
• Services → RBI rate

No confusion.

2.4 What If RBI Does Not Publish Rate for a Currency?

Use the cross-currency rate published by RBI.

Example: INR to Korean Won (KRW) not directly given.

Use:

• USD → INR
• USD → KRW

Calculate INR → KRW.

2.5 Common Mistakes

• Using RBI for goods → Wrong
• Using Customs rate for services → Wrong
• Using bank rate instead of RBI → Wrong
• Using actual conversion rate charged by money changer → Wrong

Rule 34 makes valuation standardized and uniform.

3. Rule 35 — Value Inclusive of Taxes (Backward GST Calculation)

This rule is extremely useful in real-world retail transactions.

Many businesses issue GST-inclusive prices, especially:

• MRP-based supplies
• Restaurant bills
• Cinema halls
• Gaming zones
• Parking services
• Mall kiosks
• Online marketplaces
• Cab services
• Barber shops, salons, spas

Instead of showing:

They simply show:

But GST law requires taxable value and tax amount to be known.

So Rule 35 gives a backward formula.

3.1 Formula Under Rule 35

Then calculate GST:

3.2 Example 1 — GST @18% Included

Customer pays: ₹590 (inclusive of GST @18%)

Taxable value = 590 × 100 / 118 ≈ 500

GST = 590 – 500 = 90

• CGST = 45
• SGST = 45

3.3 Example 2 — GST @5% Included

Bill amount = ₹1,050 (including GST)

• Taxable value = 1050 × 100 / 105 = 1000
• GST = 1050 – 1000 = 50

3.4 Example 3 — GST on Room Rent (12% Included)

Hotel displays room tariff as ₹2,240 inclusive of GST.

Rate = 12%

Taxable value = 2240 × 100 / 112 = 2,000

GST = 240

3.5 Example 4 — GST on Restaurant Food (5% Included)

Final bill amount printed = ₹525 (tax inclusive)

Taxable value = 525 × 100 / 105 = ₹500

GST = 25

3.6 Example 5 — Parking Ticket (18% Included)

Parking slip: “₹59 including GST”

Taxable value = 59 × 100 / 118 = 50

GST = 9

4. Why Rule 35 Is So Important

Most small businesses do not want to complicate their billing.

• Customers prefer round figures
• Retailers prefer simpler display prices
• Restaurants show menus with inclusive prices
• MRP is always inclusive

Rule 35 helps extract the "hidden GST" for accounting and compliance.

5. Diagram: Backward GST Extraction

This formula is used everywhere.

6. Rule 34 + Rule 35 Combined Example

This is a typical CA exam type question.

Example

An Indian firm provides online digital marketing services to a US client.

• Contract value: USD 5,000
• RBI rate: ₹83.25
• GST rate: 18%
• Price is agreed inclusive of GST

Compute taxable value.

Step 1: Convert to INR (Rule 34)

Value = 5,000 × 83.25 = ₹4,16,250

But this is GST-inclusive.

Step 2: Extract GST (Rule 35)

Taxable value = 4,16,250 × 100 / 118 ≈ 3,52,330

GST = 63,920

Step 3: Export Check

If service qualifies as export → GST = 0 If not → GST payable on 3,52,330

7. Another Combined Example

A hotel receives payment from a German tourist in EURO.

• Total amount paid = €600
• RBI rate = 1 EUR = ₹90
• GST inclusive at 12%

Convert first:

Value = 600 × 90 = 54,000 (inclusive)

Taxable value = 54,000 × 100 / 112 = 48,214.28

GST = 54,000 – 48,214.28 = 5,785.72

8. Practical Use Cases for Rule 34

• Export invoices
• Import invoices
• Overseas consultancy
• Freelancer payments
• Foreign hotel bookings
• Cross-border software services
• International shipping

Anywhere foreign currency is involved — Rule 34 applies.

9. Practical Use Cases for Rule 35

• Restaurants (GST-inclusive menu)
• Malls
• Multiplex tickets
• Mobile recharge packs
• Gaming zones
• Spa/salon services
• Parking tickets
• Cab aggregators
• E-commerce prices

Almost every consumer-facing business uses Rule 35 indirectly.

10. Common Mistakes Students Make in Exams

• Using bank rate instead of RBI (wrong)
• Using RBI rate for goods (wrong)
• Applying Rule 35 even when invoice is NOT tax-inclusive
• Forgetting to mention which rate (RBI/Customs) is used
• Mixing up CGST/SGST values
• Not showing proper working notes

11. Summary Table: Rule 34 & Rule 35

Final Summary (Cheat Sheet)

RULE 34:

• Goods → Customs rate
• Services → RBI rate
• Use cross-currency rate if needed

RULE 35:

• For GST-inclusive prices
• Taxable Value = Total × (100 / (100 + GST rate))
• GST = Total – Taxable Value

Also Read: Valuation for Second-Hand Goods & Vouchers Under GST