The newly elected government is working on easing the ‘related party transaction’ clause under the Goods and Services Tax for foreign companies in India. This proposal will be discussed at the GST Council meeting scheduled for June 22.
According to GST laws, related party transactions refer to the transfer of goods or services between entities under common ownership or management. These include all companies with related party transactions, including airlines, shipping lines, import supplies from their parent company outside India. Under GST laws, the related party transaction is taxable at 18 percent and its compliance is very stringent for foreign companies.
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Compliance relief is likely for airlines and other companies with related party transactions. The government is palanning to exempt payment of GST for related party transactions, wherein full input tax credit (ITC) is eligible. The subsidiary companies will thus be allowed payment of GST later, at the time of discharge of services. Any change in law, if required for this, may also be examined, sources said.
The Background
In the last few months, the tax department had sent notices to all airlines and shipping lines, who have their parent company outside India, for non-payment of GST on import of services. Airlines such as Finnair, KLM Royal Dutch Airlines, Qatar Airways, Virgin Atlantic, Etihad, Emirates, Saudi Airlines, Air Arabia, Oman Air, and Kuwait Airways and British Airways and shipping lines have received GST notices in this regard.
This had led to the International Air Transport Association (IATA) expressing concern to the government and requesting the finance ministry to intervene and resolve the issue at the earliest. Some foreign airlines were even mulling exiting India and winding up operations in India.
