payment made on behalf of group companies

[Kaustubh Karandikar]

XYZ (Proprietory Concern) is making payments to third parties such as salary, customs duty, insurance premium etc on behalf of their group companies / related parties. Subsequently, these group companies are paying back these mounts to XYZ as per the availability of funds. Will it have any GST implications for XYZ or the Group Companies?

[Amit Agrawal]

Financial transactions / transactions in money (i.e. merely by way of loan given and its repayment) per se are not taxable under GST. However, consideration therefor can be made taxable.

Even if without consideration, supply is presumed between related parties when made in the course or furtherance of business Reference: Serial No. 2 of Schedule - I.

Moreover, one should be mindful of exemption available for 'Services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services)' Reference: Serial no. 27 of Notification No. 12/2017- Central Tax (Rate) as amended till date.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Kaustubh Karandikar]

Thanks amit ji for your valuable advice as always

[Ganeshan Kalyani]

Sir, the amount that is paid back would tentamount to consideration and GST is applicable.

[Padmanathan KV]

The GST implication would depend upon the nature of arrangement between the group companies. If XYZ is merely extending loan to group companies and the loans are repaid back on availability of funds, it would not attract GST.

If XYZ is contracting to provide services such as manpower, insurance, clearance of goods etc, to group concern, then it would be liable to GST.

The facts has to be examined based on the contractual agreement if any and also treatment in books of accounts before concluding.

[Shilpi Jain]

Ensure that the understanding between the entities is properly documented to being out that it is only a payment arrangement.

No GST would be liable considering that any service element in this would only be remmunerated by way of interest which is exempt from GST.

AI Summary

Related-party supply may attract GST where reimbursements constitute consideration; mere loans repaid do not attract GST.
Where a group concern pays third-party liabilities on behalf of related companies, GST depends on substance: genuine loans and repayments are not taxable, but reimbursements that amount to consideration for services or constitute related-party supplies may attract GST; documentation, contractual terms and accounting treatment determine whether the transaction is a loan (non-taxable) or a taxable service, and an exemption may apply where consideration is interest on loans or advances.