Is GST on the full price or on the cash after exchange?
On the full price. When a customer pays partly in money and partly with an old item, the payment is "not wholly in money", so Rule 27 values the sale at the new item's open market value: what you would charge for it without any exchange.
Many shops get this wrong because the exchange looks like a discount on the counter. It is not. A discount reduces the price you accept. In an exchange you still get the full price; part of it simply arrives as an old TV or phone instead of cash. That is why Rule 27's own first illustration is a phone exchange: the new phone is valued at ₹24,000, its price without exchange, even though the customer paid only ₹20,000 in cash.
What does a correct exchange bill look like in rupees?
Tax the new item at its normal price, total the bill with GST, and only then take off the exchange value. Below, a new TV with a list price of ₹35,400 including 18% GST, and an old TV taken in at ₹4,000.
| Bill line | Right: exchange after GST | Wrong: exchange as a discount |
|---|---|---|
| Taxable value | ₹30,000.00 | ₹26,610.17 |
| CGST 9% | ₹2,700.00 | ₹2,394.92 |
| SGST 9% | ₹2,700.00 | ₹2,394.91 |
| Bill total | ₹35,400.00 | ₹31,400.00 |
| Less: exchange value of old TV | ₹4,000.00 | (already taken off) |
| Amount the customer pays | ₹31,400.00 | ₹31,400.00 |
| GST paid to the government | ₹5,400.00 | ₹4,789.83 |
The customer pays ₹31,400 either way. The wrong bill short-pays ₹610.17 of GST on this one sale. Over a festival season of exchange sales, that becomes tax, interest and possibly a penalty in a later demand.
The same check for a phone: list price ₹20,060 including 18% (taxable ₹17,000), old phone taken at ₹3,000, customer pays ₹17,060.
| Right | Wrong | |
|---|---|---|
| Taxable value | ₹17,000.00 | ₹14,457.63 |
| GST 18% (CGST + SGST) | ₹3,060.00 (₹1,530 + ₹1,530) | ₹2,602.37 |
| Less: exchange value | ₹3,000.00 | (netted off before tax) |
| Customer pays | ₹17,060.00 | ₹17,060.00 |
| GST short-paid | None | ₹457.63 |
To split any GST-inclusive price into taxable value and tax, divide by 1.18 for 18% items. Our reverse GST formula guide shows the method for every rate.
Which value applies in the cases a shop actually meets?
Use the new item's normal price when you have one. Only when there is no such price does the value become cash plus the old item's value. A festival discount is a separate thing and is shown on its own line.
| Case | Taxable value | Rule |
|---|---|---|
| New item has a normal selling price (most shops) | That price, without exchange | Rule 27(a), illustration 1 |
| No known price for the new item | Cash received + money value of the old item known at the time of sale | Rule 27(b), illustration 2 (₹40,000 + ₹4,000 = ₹44,000) |
| Exchange plus a festival discount on the bill | Price minus the discount printed on the bill; the exchange value is not deducted | Section 15(3)(a) for the discount, Rule 27 for the exchange |
Example of the third case: a TV listed at ₹35,400 with a ₹1,180 festival discount recorded on the bill. The discounted price is ₹34,220, so the taxable value is ₹29,000 and GST ₹5,220. Then subtract the ₹4,000 exchange value; the customer pays ₹30,220. Two separate lines, two separate rules. More on what counts as a valid discount is in GST on discounts on the invoice.
What lines should the exchange bill show?
The bill should read like a normal tax invoice for the new item, with the exchange shown below the total as a form of payment.
- The new item line: description, model, HSN, quantity, rate and taxable value
- GST lines: CGST and SGST (or IGST for an inter-State sale) at the item's rate
- The bill total including GST
- A line "Less: exchange value of old item" with make, model and condition, for example "Less: exchange value of old 32-inch TV (Brand X, working, no remote) ₹4,000"
- The balance received, split by mode: cash, UPI or card
- For a phone, the old handset's IMEI written as text in the note, so the exchange can be traced later
- The customer's name and phone number, kept with your record of the old item
For phones and TVs the rest of the bill follows the usual format; see the mobile shop bill format and the electronics shop bill format.
Do I pay GST on the old item I take in?
Not when it comes from an ordinary customer. A walk-in individual giving up a personal phone or TV is not supplying it in the course of business (Section 7(1)(a)), so there is no GST on the old item and no invoice from them.
Reverse charge does not change this for a normal shop. Section 9(4) applies only to classes of registered persons the government notifies, and the notification issued under it (07/2019-CT(Rate)) is for real-estate promoters. Keep a simple record instead: date, the customer's name and phone, make, model, condition, serial number or IMEI, and the value you gave.
- Registered business trading in its old asset: an office handing over old ACs is disposing of a business asset, which is a supply under Section 7. It should give you its own tax invoice for the old goods, and you can claim input tax credit on it under Section 16, subject to the blocks in Section 17(5). Ask your CA before you claim.
- Reselling the old item: if you took no input tax credit on it, the margin scheme in Rule 32(5) lets a dealer in second-hand goods pay GST only on the selling price minus the exchange value. The rule is written for persons dealing in second-hand goods, so confirm with your CA that it fits your shop. Worked numbers are in GST on second-hand mobile phones: margin scheme.
- Scrapping it: if the old item has no resale value, record it as written off and keep the exchange record with the bill.
Is a size or colour exchange the same thing?
No. When a customer swaps a shirt for another size or colour, nothing old is being traded in. It is a return of the first sale plus a new sale.
Record the return against the original bill (a credit note, if GST was charged) and bill the new piece, collecting or refunding any difference. Walk-in returns are covered step by step in Sales return from a walk-in customer, and return policies in return and refund management.
What mistakes do shops make with exchange offers?
Most mistakes come from treating the exchange as a price cut. Check your bills for these four.
- Netting the exchange value off before GST. It lowers the taxable value and short-pays GST on every exchange sale, as the tables above show.
- Printing only the net amount. A bill that shows ₹31,400 with no full price and no exchange line cannot be matched to the stock you sold.
- No record of the old item. Without make, model and the customer's details, you cannot show where the old TV or phone came from when you resell it.
- Using an old rate. TVs and air conditioners moved from 28% to 18% from 22 September 2025, and mobile phones are at 18%. Check the item's rate on GST on TVs, GST on ACs and GST on mobile phones.
Planning an exchange offer for a sale season? The festival sale promotions guide covers the other offer types and how to bill them.