GST on transfers between related persons in India

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Nowadays, most businesses operate with subsidiaries and branches spread throughout the various cities of India. Decentralization, along with collaboration, has helped various businesses and organizations to expand and therefore has helped optimize the efficiency of each of these processes. These businesses also have to maintain different account books and make separate profit analyses for their subsidiaries and other branches. In many instances, a business requires an asset transfer between related parties.

Transactions performed between related parties will now be considered a supply even if it is done without consideration. So in simple words, GST will be applicable to every transaction whenever goods or services are transferred from one party and another. An example could be the transfer of assets to subsidiaries or sub-branches. In this article, you will understand the GST on Transfers between rela

According to the Goods And Services Tax, all the individuals or businesses will be considered to be related if they fall into the following categories:

Who is a Related Person?

  • The entities that together manage and control another entity
  • An officer or the managing director of a business is also a part of the director of another business
  • An employer and the employee
  • Legally recognized business partners
  • One of the individuals controls the businesses indirectly or directly
  • An individual or an institution holding at least 25% shares of a company either directly or indirectly
  • If the individuals are controlled and monitored by single management or authority
  • The managerial persons and the officers are a part of the same family

The legal Partner of a business can be:

  • Individuals
  • company
  • Cooperative society
  • local authority
  • governments
  • HUF
  • Firm
  • LLP
  • artificial juridical person

GST Charges in Transactions Between related person

Section 7 of the CGST Act, 2017 explains that GST is charged on the delivery of goods or services or both for consideration and in the conduct and furtherance of business, which includes transfer. According to Schedule 1 of the Act, even if the transfer of goods or services is undertaken without consideration, it is still a supply. A “distinct person” in this context refers to a single legal entity’s GST registration (same PAN). Consequently, commodities sent to branches as a symbol of appreciation and bonus will be regarded as a supply of goods and consequently taxable under GST, where branches have received distinct registrations under GST.

GST Tax Rates on transfers between related persons in India

Taxes are calculated based on CBIC notification rates and applied to the taxable value of supply established under the GST Act in line with CBIC’s notification rates. The value of supplies made to related parties is specifically mentioned in the GST statute.

Other than when goods or services are provided through an agent, Rule 28 states that the value of a supply between two distinct people or where the supplier and recipient are related is determined by the open market value of that supply or, if the latter is not available, the value of a supply of like kind and quality.

Permanent transfer of goods where ITC is used

GST will also be applicable when there is a permanent transfer or sale of business-related goods and machinery on which the business has availed ITC. This sale of goods will be treated as a supply even if there is no consideration. GST is only applicable to the sale of business-related assets and is not charged when a person acquires land, property, etc.

Here, ‘Permanent Transfer’ refers to the transfer of goods without the intention of getting them back. However, all the goods and services shared for work or sample products sent to the company warehouse or lab for testing or government certification will not be considered as supply.

On the other hand, donation or distribution of business assets in any other matter other than for sale will be considered as a supply even if ITC has been claimed.

From the article, we conclude that most transactions between related persons will be considered as supply under the GST act even if it is done without consideration. Supplies under GST are considered a taxable event, so it is recommended that you determine whether the transaction you are performing falls under ‘supply’ or not.

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