Related-Party Transactions May Be Excluded from GST Ambit

By: Admin | August 29, 2024 | Categories: GST Recent News | 4 Min Read

The Indian government is considering excluding related-party transactions from the ambit of Goods and Services Tax (GST) when there is no commercial consideration involved, according to sources. This potential decision could significantly benefit companies across various sectors, especially those with foreign branches that engage in intra-group transactions.

Context and Background:

This development comes on the heels of a recent ruling on GST concerning corporate guarantees, where companies that could claim full tax credit and dealt exclusively in taxable goods and services were exempted from GST. The current discussion on related-party transactions aims to simplify the convoluted tax treatment of such transactions, which has led to confusion and challenges for many businesses.

A senior government official, speaking on the condition of anonymity, acknowledged the issues companies face regarding related-party transactions. Although the government issued Circular 210 to clarify the applicability of GST on imported services, misinterpretations of the law have persisted.

Key Concerns:

• Ease of Doing Business: The official emphasized that the government’s goal is to facilitate ease of doing business rather than complicate it. Despite efforts to clarify taxability through circulars, ambiguities continue to arise.
• Revenue Neutral Transactions: Imposing GST on transactions that do not generate revenue for the government undermines the objective of simplifying business operations. Misinterpretation of these rules could lead to constitutional disputes and create a negative perception among the global business community.

Expert Opinions:

A tax expert expressed optimism that the GST Council would find a solution to protect the industry from unnecessary tax burdens. According to another tax expert, recent updates from Circular 210/4/2024 and Circular No. 199/11/2023-GST, along with amendments to Rule 28 of the CGST Rules, suggest that GST may not apply to related-party transactions where the recipient is eligible for full input tax credit (ITC), provided no invoice is issued by the supplier. This also applies to the import of services, where a self-invoice raised by the Indian recipient under Section 31(3)(f) of the CGST Act is required for it to be treated as a valid GST invoice.

The ongoing discussions within the GST Council indicate a possible shift towards reducing complexities and ensuring that tax laws do not hinder business operations, particularly in cases of related-party transactions.

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