In this presentation we have tried to highlight the implication of GST on related party transactions. Everyone should be aware that under GST if there is any transaction with related party then valuation aspect to be kept in mind.

1. Optitax’s
R
GST impact on related party
transaction

2. Index
2 Meaning of related party
3 Meaning of Distinct person
4 Implications under GST
1 Meaning of Person

3. 1 Meaning of Person
Individual
Hindu Undivided Family
Company
Firm
Limited Liability Partnership
Association of persons or Body of individual, whether incorporated or
not, in India or outside India
Corporation established by or under any Central Act, State Act or
Provincial Act or a Government company as defined in clause (45) of
section 2 of the Companies Act, 2013

4. 1 Meaning of Person
Body corporate incorporated by or under the laws of a country outside
India
Co-operative society registered under any law of co-operative societies
Local authority
Central Government or a State Government
Society as defined under the Societies Registration Act, 1860
Trust
Every artificial juridical person, not falling within any of the above

5. 2 Meaning of related party
Where persons are officers or directors of one another’s businesses
OwnerOwner
Related

6. Mr. X is director in XYZ Pvt Ltd which is fully owned by Mr. Y and Mr.
Y is director of Mr. X’s company ABC Pvt Ltd
Whether XYZ Pvt Ltd and ABC Pvt Ltd are related party Answer
Yes
Mr. X who owns company ABC Pvt Ltd is also a director in XYZ Pvt
Ltd which is owned by Mr. Y
No

7. 2 Meaning of related party
Where such persons are legally recognised partners in business
Related

8. Mr. A & Mr. B are partners in XZY firm.
- Mr. A & Mr. B are related persons
Mr. A & Mr. B are partners in XZY firm.
Mr. A is also partner along with Mr. C
in PQR firm.
- Mr. A & Mr. B are related persons
- Mr. A & Mr. C are related persons
- Mr. B & Mr. C are not related person

9. 2 Meaning of related party
Where such persons are employer and employee
Employer
Employee

10. Mr. A is working as employee of Mr. B’s business
- Mr. A & Mr. B are related persons
Mr. A is GST consultant in Mr. B’s business. Mr. B is
employee in Mr. C’s business
- Mr. A & Mr. B are not related persons
- Mr. B & Mr. C are related persons
- Mr. A & Mr. C are not related person

11. 2 Meaning of related party
Any person directly or indirectly owns, controls or holds twenty-five
per cent. or more of the outstanding voting stock or shares of both of
them
Related

12. Mr A holds 25% share in ABC Ltd and 20% shares in XYZ
ltd. Further he also hold 30% shares in PQR ltd
- ABC Ltd and PQR Ltd are related persons
- ABC Ltd and XYZ Ltd are not related persons
- XYZ Ltd and PQR Ltd are not related persons

13. 2 Meaning of related party
One of them directly or indirectly controls the other
Related

14. Parent entity has a controlling interest in Subsidiaries A and B and has significant influence over
Associates 1. Subsidiary C has significant influence over Associate 2
Parent
Company
Subsidiary A
Subsidiary B
Associates
2
Associates
1
• Parent company are related party for Subsidiary A, B and
Associate 1 & 2
• Subsidiary A & B are related party
• Subsidiary A & Associate 1 are related party
• Subsidiary B & Associate 2 are related party
• Subsidiary A & Associate 2 are not related party
• Associate 1 & 2 are not related party

15. 2 Meaning of related party
Both of them are directly or indirectly controlled by a third person
Related

16. Mr A holds 45% shares in XYZ Ltd and 20% Shares in PQR Ltd. Further, it also controls ABC ltd
- XYZ Ltd and ABC Ltd are related persons
- XYZ Ltd and PQR Ltd are not related persons
- ABC Ltd and PQR Ltd are not related persons

17. 2 Meaning of related party
Together they directly or indirectly control a third person
Related Controls

18. ABC Ltd holds 30% shares in XYZ Ltd and PQR Ltd holds 30% shares in XYZ Ltd
- ABC Ltd & PQR ltd are related persons

19. 2 Meaning of related party
they are members of the same family
Spouse
Children
Grand
Parents
Parents
Brothers/
Sisters
RELATED ONLY IF WHOLLY
OR MAINLY DEPENDENT

20. 2 Meaning of related party
Persons who are associated in the
business of one another in that one is the
• sole agent or
• sole distributor or
• sole concessionaire,
howsoever described of the other

21. 3 Meaning of Distinct person
A person who has obtained or is required to obtain more than one
registration, whether in one State or Union territory or more than one
State or Union territory shall, in respect of each such registration, be
treated as distinct persons for the purposes of this Act
A person who has obtained or is required to obtain registration in a
State or Union territory in respect of an establishment, has an
establishment in another State or Union territory, then such
establishments shall be treated as establishments of distinct persons
for the purposes of this Act

22. XYZ Ltd – PAN BPXXX4649D
Maharashtra Gujarat
Haryana
Separate business
vertical
Separate business
vertical
Establishment
Establishment
GSTIN - 27BPXXX4649DZ01
GSTIN - 27BPXXX4649DZ02
GSTIN - 24BPXXX4649DTO1
GSTIN - 06BPXXX4649DZI1

23. 4 Implications under GST - Valuation
Valuation would be determined in terms of Rule 28 of CGST which shall be followed sequentially:
1. Open market value :
“Open market value” of a supply of goods or services or both means the full value in money,
excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a
person in a transaction, where the supplier and the recipient of the supply are not related and the
price is the sole consideration, to obtain such supply at the same time when the supply being valued is
made”
Note 1: Where the goods are intended for further supply as such by the recipient, the value shall, at
the option of the supplier, be an amount equivalent to ninety percent of the price charged for the
supply of goods of like kind and quality by the recipient to his customer not being a related person
Note 2: Provided further that where the recipient is eligible for full input tax credit, the value
declared in the invoice shall be deemed to be the open market value of the goods or services

24. 4 Implications under GST
2. Value of supply of goods or services of like kind and quality :
“Supply of goods &/or services of like kind and quality” means any other supply of goods or services or
both made under similar circumstances that, in respect of the characteristics, quality, quantity,
functional components, materials, and the reputation of the goods &/or both first mentioned, is the
same as, or closely or substantially resembles, that supply of goods &/or services both”
3. Value of supply of goods or services or both based on cost :
The value shall be one hundred and ten percent of the cost of production or manufacture or the cost
of acquisition of such goods or the cost of provision of such services
4. Residual method for determination of value of supply of goods or services or both :
The value shall be determined using reasonable means consistent with the principles and the general
provisions of section 15 and the provisions of this Chapter

25. 4 Implications under GST – Time of supply
Associated enterprises :
“Associated enterprises” shall have the same meaning as assigned to it in section 92A of the Income-
tax Act, 1961 (Holding company, Subsidiary, branch etc)
In case of supply by associated enterprises, where the supplier of service is located outside India, the
time of supply shall be the
• Date of entry in the books of account of the recipient of supply or
• The date of payment,
whichever is earlier

26. Thank You !
Optitax’s
R
Raveendra Pethe
Senior Advisor
Mobile : +91 9823 010 562
Email : ravi@optitaxsconsulting.com

27. Thank You !
Optitax’s
R
Raveendra Pethe
Senior Advisor
Mobile : +91 9823 010 562
Email : ravi@optitaxsconsulting.com
Sunil Kumar
Senior Advisor
Mobile : +91 9822 529 390
Email : sunil@optitaxsconsulting.com
Amrendra Chaudhri
Consultant
Mobile : +91 9823 445 595
Email : amrendra@optitaxsconsulting.com
Milind Kulkarni
Senior Advisor
Mobile : +91 9823 048 450
Email : milind@optitaxsconsulting.com
Madhav Bapat
Senior Advisor
Mobile : +91 9823 051 284
Email : madhav@optitaxsconsulting.com
Nilesh Mahajan
Consultant
Mobile : +91 8087040710
Email : nilesh@optitaxsconsulting.com