Inter payment by one sister concerned to other.
This query is : Resolved
08 June 2018
Dear Sir,
I have query on inter payment by one sister concerned for other sister concerned. I mean that one company's bank accounts is used for other company's payment.
Is this covered under GST as a supply of service to one sister concerned from other sister concerned.
Can it be treated as transaction in money to avoid the GST.
or please suggest me other ways to avoid GST.
I have query on inter payment by one sister concerned for other sister concerned. I mean that one company's bank accounts is used for other company's payment.
Is this covered under GST as a supply of service to one sister concerned from other sister concerned.
Can it be treated as transaction in money to avoid the GST.
or please suggest me other ways to avoid GST.
08 June 2018
Dear Sir, I have query on inter payment by one sister concerned for other sister concerned. I mean that one company's bank accounts is used for other company's payment. Is this covered under GST as a supply of service to one sister concerned from other sister concerned. Can it be treated as transaction in money to avoid the GST. or please suggest me other ways to avoid GST.
08 June 2018
Dear Sir, I have query on inter payment by one sister concerned for other sister concerned. I mean that one company's bank accounts is used for other company's payment. Is this covered under GST as a supply of service to one sister concerned from other sister concerned. Can it be treated as transaction in money to avoid the GST. or please suggest me other ways to avoid GST.
01 August 2024
When one sister concern (company) makes payments on behalf of another sister concern, there are several GST and accounting implications to consider. Here’s how you can handle this situation:
### GST Implications:
1. **Nature of the Transaction:**
- **Service Under GST:** If one company makes payments on behalf of another, it can be considered as a supply of service under GST, specifically as a "service" of making payments on behalf of another person (the other sister concern).
- **Consideration:** The act of making payments on behalf of another entity without a clear and documented consideration could lead to confusion regarding whether GST is applicable.
2. **Transaction in Money:**
- **Transaction in Money:** If the payment is made solely to settle a liability and there’s no additional service or benefit provided beyond this, it might be classified as a mere transfer of funds rather than a supply of service. However, this needs careful documentation and consideration of the facts and circumstances of the transactions.
3. **Documentation and Agreements:**
- **Inter-Company Agreements:** Proper inter-company agreements should be in place to document the nature of the transactions and the intention behind them. This can help clarify whether the payments are considered as service provision or simply transfers between entities.
### Ways to Handle the Situation:
1. **Document as a Loan or Advance:**
- If one company makes payments on behalf of another, you can document it as an inter-company loan or advance. This will involve:
- Recording the payment as a loan or advance in the books of the paying company.
- Recording the corresponding liability in the books of the receiving company.
- This approach avoids immediate GST implications but must be properly accounted for and documented.
2. **Reimbursement Arrangement:**
- **Reimbursement:** Establish a clear reimbursement arrangement where the sister concern that made the payment raises a debit note or invoice for the amount to be reimbursed. The other sister concern should then make a payment to settle this amount.
- **GST on Reimbursement:** In this case, GST might be applicable depending on whether the reimbursement constitutes a taxable supply. However, if it is merely a reimbursement without any additional charge or service, GST might not be applicable.
3. **Treat as Inter-Company Adjustment:**
- **Internal Adjustment:** If there’s no actual supply of goods or services and the payment is merely an internal adjustment, ensure that this is documented and reflected accurately in the financial records. Consult with a GST expert to determine if GST needs to be accounted for in this scenario.
4. **Consult GST Expert:**
- Given the complexity of GST regulations and the specific circumstances of your transactions, it's advisable to consult with a GST professional or tax advisor. They can provide guidance tailored to your situation and ensure compliance with GST laws.
### Summary:
- **GST Applicability:** Payments between sister concerns can be subject to GST if they constitute a supply of service. If it’s merely a transfer of funds, careful documentation is required to avoid GST.
- **Documentation:** Use inter-company agreements, and consider documenting payments as loans, advances, or reimbursements.
- **Consult Professionals:** Always seek advice from a GST expert to navigate complex scenarios and ensure compliance.
Proper documentation and clear agreements between the entities will be crucial in managing GST implications effectively.
### GST Implications:
1. **Nature of the Transaction:**
- **Service Under GST:** If one company makes payments on behalf of another, it can be considered as a supply of service under GST, specifically as a "service" of making payments on behalf of another person (the other sister concern).
- **Consideration:** The act of making payments on behalf of another entity without a clear and documented consideration could lead to confusion regarding whether GST is applicable.
2. **Transaction in Money:**
- **Transaction in Money:** If the payment is made solely to settle a liability and there’s no additional service or benefit provided beyond this, it might be classified as a mere transfer of funds rather than a supply of service. However, this needs careful documentation and consideration of the facts and circumstances of the transactions.
3. **Documentation and Agreements:**
- **Inter-Company Agreements:** Proper inter-company agreements should be in place to document the nature of the transactions and the intention behind them. This can help clarify whether the payments are considered as service provision or simply transfers between entities.
### Ways to Handle the Situation:
1. **Document as a Loan or Advance:**
- If one company makes payments on behalf of another, you can document it as an inter-company loan or advance. This will involve:
- Recording the payment as a loan or advance in the books of the paying company.
- Recording the corresponding liability in the books of the receiving company.
- This approach avoids immediate GST implications but must be properly accounted for and documented.
2. **Reimbursement Arrangement:**
- **Reimbursement:** Establish a clear reimbursement arrangement where the sister concern that made the payment raises a debit note or invoice for the amount to be reimbursed. The other sister concern should then make a payment to settle this amount.
- **GST on Reimbursement:** In this case, GST might be applicable depending on whether the reimbursement constitutes a taxable supply. However, if it is merely a reimbursement without any additional charge or service, GST might not be applicable.
3. **Treat as Inter-Company Adjustment:**
- **Internal Adjustment:** If there’s no actual supply of goods or services and the payment is merely an internal adjustment, ensure that this is documented and reflected accurately in the financial records. Consult with a GST expert to determine if GST needs to be accounted for in this scenario.
4. **Consult GST Expert:**
- Given the complexity of GST regulations and the specific circumstances of your transactions, it's advisable to consult with a GST professional or tax advisor. They can provide guidance tailored to your situation and ensure compliance with GST laws.
### Summary:
- **GST Applicability:** Payments between sister concerns can be subject to GST if they constitute a supply of service. If it’s merely a transfer of funds, careful documentation is required to avoid GST.
- **Documentation:** Use inter-company agreements, and consider documenting payments as loans, advances, or reimbursements.
- **Consult Professionals:** Always seek advice from a GST expert to navigate complex scenarios and ensure compliance.
Proper documentation and clear agreements between the entities will be crucial in managing GST implications effectively.
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