Valuation Rules Under GST – Rules 27 to 31 Explained

If there’s one part of GST that confuses almost everyone — from new business owners to even people who’ve been filing GST for years — it’s the valuation rules. And I totally get why. Normally, GST is simply charged on the “transaction value”, meaning the price you and your customer agree upon. But the moment the transaction involves related persons, non-monetary consideration, or special situations, the regular Section 15 rule becomes useless.

That’s where Valuation Rules (Rules 27 to 31) come in. These rules are literally the backup engine of GST valuation — the rules you fall back on when you can’t rely on invoice value.

In this blog, we’ll walk through each rule in a comfortable, simple language (like how we’d explain it to a friend), and we’ll add examples so the application becomes super clear.

We’ll also include diagrams for visual understanding so readers don’t get lost in the theory.

Let’s begin.

1. Why Do We Even Need Valuation Rules?

The valuation rules apply when:

• Parties are related
• Price is not the sole consideration
• Supply is bartered or exchanged
• Goods or services are provided for free
• Transactions are done through agents
• There’s no direct comparable price available

GST wants a fair value — not an artificially reduced or manipulated price. So when invoice value is not trustworthy, the Valuation Rules take over.

These rules run from Rule 27 to Rule 31, and each rule deals with a different kind of situation.

Let’s go rule by rule.

2. Rule 27 – Value of Supply When Price Is NOT the Sole Consideration

This rule applies when the buyer is giving something other than money as part of the payment.

Could be:

• Barter
• Exchange
• Part payment through goods
• Part payment through a service
• Extra benefit given in return

Rule 27 gives a hierarchy:

IF price is not sole consideration → check valuation in this order:

• Open Market Value (OMV)
• Value of like kind and quality
• Sum total of consideration in money + money equivalent of non-monetary part
• Rule 30 (Cost + 10%)
• Rule 31 (Residual method)

Let’s look at the examples.

Example – Old Phone Exchange

A dealer sells a new phone, the customer gives an old phone in exchange.

• Price of new phone (with no exchange): ₹20,000
• Exchange offer price: Customer pays ₹16,000 + gives old phone

Here:

• Price is not the sole consideration
• Old phone has value
• So valuation follows Rule 27

Under Rule 27:

• Check OMV
• OMV = ₹20,000

Since OMV is known → Value = ₹20,000.

GST must be charged on ₹20,000, not ₹16,000.

Example 2 – Laptop + Printer Combo (Bundled Consideration)

A laptop is sold for ₹50,000, but along with it, a printer worth ₹8,000 is offered for ₹2,000.

Since the consideration is partially monetary and partially non-monetary (reduction), OMV is taken.

If laptop OMV = ₹50,000 and printer OMV = ₹8,000

→ Rule 27 says:

Value = OMV = ₹50,000 + ₹8,000 = ₹58,000

Even though price charged was lower, GST applies on OMV.

This is a classic Rule 27 situation.

3. Rule 28 – Value of Supply Between Related Persons

This is probably the most used rule in the real world.

Rule 28 is applied when:

• Supplier and buyer are related
• Or supply is to a distinct person (branch transfer)

This rule also has a hierarchy:

Valuation Between Related Persons:

• Open Market Value (OMV)
• Value of like kind and quality
• Rule 30 (Cost + 10%)
• Rule 31 (Residual method)

That last point is super important.

If the buyer can take full ITC, then valuation tension disappears — invoice value is accepted.

Example – Related Companies (ABC & XYZ Case)

Ms. Priya holds:

• 30% in ABC Ltd.
• 35% in XYZ Ltd.

Because she controls both companies, ABC Ltd. and XYZ Ltd. are related persons.

If ABC sells goods to XYZ:

• Invoice value cannot be accepted blindly
• Rule 28 must be applied

If XYZ can take full ITC → invoice value = accepted value

If XYZ cannot take ITC → OMV or follow hierarchy

Another Example – Q Ltd. and R Ltd. Control

Q Ltd. influences R Ltd.’s corporate policy.

That means they are related.

If Q sells goods to R at:

• Invoice price: ₹10,000
• OMV: ₹15,000

→ GST valuation = ₹15,000 (OMV)

4. Rule 29 – Value of Supply When Done Through an Agent

Rule 29 is applied when:

• A principal supplies goods to an agent
• An agent supplies goods on behalf of a principal

There are only two valuation methods:

• OMV
• 90% of price charged by agent to customers (optional) (only for goods of like kind and quality)

If none works → Rule 30 → Rule 31

Example – Groundnut Agent Example

Principal supplies groundnuts to an agent.

Agent sells groundnuts at ₹5,000 per quintal to customers.

Rule 29 allows valuation as:

• Either OMV (if known)
• OR 90% of agent’s price → 90% of ₹5,000 = ₹4,500

So taxable value can be taken as ₹4,500 per quintal.

Many industries like FMCG, grains, seeds, textiles use this 90% valuation.

5. Rule 30 – Cost + 10% Method

When OMV is unknown and no comparable goods exist, GST allows valuation using cost.

Rule 30 formula:

This is usually used when:

• Goods are unique
• Goods are customized
• Services are special in nature
• Related party OMV not available
• Complex bundled services
• In-house branch transfer of unique items

Example (Common Real Case)

Assume cost of producing a machine:

• Raw materials = ₹40,000
• Labour = ₹15,000
• Factory overheads = ₹10,000
• Total cost = ₹65,000

Under Rule 30:

Value = Cost + 10% = 65,000 + 6,500 = ₹71,500

GST applies on ₹71,500.

This rule is commonly used in internal transfers within manufacturing companies.

6. Rule 31 – Residual Valuation Method

Rule 31 is the last resort.

You use this when:

• Rules 27, 28, 29, and 30 cannot be applied
• No OMV
• No comparable product
• No cost available
• Complex or special nature of supply

Rule 31 says:

The officer and taxpayer use judgment based on:

• Market research
• Industry data
• Past pricing
• Profit margin analysis

7. Combined Example Using All Rules

Let’s say ABC Ltd. supplies machinery to XYZ Ltd. (related persons).

• Invoice value: ₹1,00,000
• OMV: Not available
• Similar machine: ₹1,40,000
• Cost: ₹1,10,000

Which rule applies?

Step 1 → Parties are related → Rule 28

Check hierarchy:

• OMV not available
• Value of like kind and quality = ₹1,40,000

So valuation = ₹1,40,000

No need to go to Rule 30 or 31.

8. Valuation Rules  – Key Points Not to Miss

Key Points

• Open Market Value is always preferred
• Value of like kind and quality is next fallback
• Cost + 10% is used only when required
• Residual method gives flexibility
• Agent rule offers 90% option
• Full ITC condition can override Rule 28 complications

These are the practical interpretations businesses need to understand deeply.

9. Practical Problems Businesses Face in These Rules

Many industries constantly mess this up:

Under-invoicing related party transactions

GST audits focus heavily on this.

Not applying Rule 27 when barter is involved

Especially in:

• Exchange offers
• Free items
• Combo deals

Wrong valuation for agent-based transactions

Especially in FMCG and agricultural supplies.

Incorrect cost calculation in Rule 30

Missing overheads is the biggest mistake.

Using residual method too quickly

Rule 31 must only be applied when ALL others fail.

10. Simple Memory Trick

To quickly identify the right rule, remember:

• R27 – Non-money
• R28 – Related
• R29 – Agent
• R30 – Cost
• R31 – Last option

This simple mnemonic will save you during exams, audits, and real-life business decisions.

11. Quick Summary (Cheat Sheet for Rules 27–31)

• Rule 27: Price not sole consideration → OMV → like kind → cost+10 → residual
• Rule 28: Related persons → OMV → like kind → cost+10 → residual
• Rule 29: Agent transactions → OMV or 90% of agent price
• Rule 30: Cost + 10%
• Rule 31: Reasonable valuation (last option)

Final Thoughts

GST valuation rules may look intimidating at first, but once you break them into everyday logic, they actually become easy to apply. Whether you're dealing with related parties, barter, exchange offers, or specialized services, Rules 27–31 help you arrive at a fair taxable value.

The key is understanding when invoice value can be trusted, and when it cannot. And honestly, the valuation rules aren’t there to trouble businesses — they’re simply there to ensure transparency and fairness in GST.

If you follow the hierarchy and pick the right rule for the right situation, your GST valuation will always be solid, audit-proof, and compliant.

Also Read: Related Persons Under GST – Meaning, Types & Examples