GST: Tax on 90% market value in deal among related parties

By | May 25, 2017
(Last Updated On: May 25, 2017)

GST: Tax on 90% market value in deal among related parties

GST: Tax on 90% market value in deal among related parties

Companies can pay goods and services tax on 90% of the market value in case of supply of goods to entities such as subsidiaries, branches and joint ventures, following changes made by the GST Council to rules governing transactions between related parties that could raise a cheer in India Inc. The council is the apex decision-making body for the new tax regime set to kick in on July 1.

The GST rules allow companies to pay tax on 90% of the price at which the recipient entity supplies the goods further or any value derived through methodology chosen by it as against 100% under the current excise laws.

The declared invoice value will be accepted but only where the recipient (or buyer) is eligible to claim credit of GST charged.

In cases where credit is not available GST will be applicable on open market value, which is the full value of money payable by the recipient to obtain such goods or services where supplier is not related and price is the sole consideration.

“Taking the unrelated sale as a basis for GST valuation is a more realistic estimate in case of supply of goods. This can be clearly extended to services where there is no change in nature of service when provided to an unrelated buyer,” said Bipin Sapra, partner, EY.

Tax experts said that the new formulation could bring down overall tax incidence for goods supplier, but for services providers it may be difficult to find comparable value in case of services.

“A major challenge arises in case of intra-company cross charges (from one office to another) as they are deemed to be ‘distinct persons’,” said Pratik Jain, leader, indirect taxes, PwC. “It is not clear as to whether the expenses such as salary of employees, depreciation, etc.

need to be mandatorily included or only third party costs need to be considered. This would be particularly relevant if the recipient office is not eligible for entire credit, which may not be unusual.”

Jain said businesses need to evaluate all transactions, specifically those relating to related party or intra-company, and arrive at the value carefully.

ET View: Provide Full Relief

attached to the service, instead of providing partial respite to companies. The reason: the levy on intra-firm crossborder supply of services will result in valuation challenges and possible transfer pricing litigation. Raising compliance burden also goes against the GST. Source – [24-05-2017]

Category: GST

About CA Satbir Singh

Chartered Accountant having 12+ years of Experience in Taxation , Finance and GST related matters and can be reached at Email :

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