Related-party transactions may be kept out of GST ambit
NEW DELHI: The government is likely to exclude related-party transactions from the ambit of goods and services tax (GST) if there is no commercial consideration involved, as per sources.
The decision will benefit companies across the sectors, particularly those with foreign branches that engage in transactions with one another. This development follows the recent decision regarding GST on corporate guarantees, in which government exempted companies that can claim full tax credit and deal exclusively with taxable goods and services. Sources say tax treatment of related-party transactions is somewhat convoluted, and the government aims to eliminate ambiguities by simplifying the law.
“Several companies are facing issues regarding related-party transactions. Though the government came up with circular 210 clarifying about the applicability of GST on imported services, there are instances where the law has been wrongly interpreted,” a top official said on the condition of anonymity.
“We want to enable ease of doing business and not complicate things for business entities. Though we have been coming out with circulars giving clarification on taxability of goods and services, confusions do crop up time and again,” he added.
“Imposing tax on revenue neutral transactions, which do not contribute to the government exchequer, would defeat the objective for ease of doing business. Wrong interpretation of circular by revenue would lead to constitutional disputes and give wrong flavour to the global business community,” said Abhishek A Rastogi, founder of Rastogi Chambers. Rastogi hopes the GST Council would come up with a solution to protect the industry.
