GST on Related Party Transactions, Distinct Persons & Inter-Company Transactions

Quick Answer: Is Every Inter-Company Transfer Taxable?

No. The first question is whether there is a supply. But where the parties are related persons or distinct persons and the transaction is in the course or furtherance of business, Schedule I can deem specified transactions to be supplies even without consideration.

Same PAN, different GSTINRegistrations in different States are generally treated as distinct persons under Section 25(4)/(5). A service between such registrations can therefore require GST analysis.

Related entitiesGroup companies may fall within the related-person definition. A taxable supply can arise even without consideration in specified circumstances under Schedule I.

ISDISD is an ITC-distribution mechanism. It is not the same thing as cross-charge of a service between GST registrations.

Practical ruleBefore posting an inter-company journal entry, identify the GSTINs, PAN, nature of activity, recipient, whether there is an identifiable supply, whether Schedule I applies, valuation under Rule 28, and whether the transaction is instead an ISD distribution.

Current-law point: GST Council amendments made the ISD mechanism prospectively applicable from 1 April 2025 to specified input-service distribution situations, including inter-State reverse-charge transactions, with corresponding Section 20 and Rule 39 changes. citeturn0search20

1. Legal Framework

Provision / page reference	Practical use
CGST Act – Section 2(6)	Export of services definition; relevant where group services are supplied cross-border.
CGST Act – Section 2(49)	Defines “input”; relevant to ITC analysis.
CGST Act – Section 2(61)	Input Service Distributor definition; important for group/common input services.
CGST Act – Section 2(85)	“Place of business” definition.
CGST Act – Section 2(89)	Defines place of supply for goods in the CGST context; detailed POS rules are in IGST Act.
CGST Act – Section 2(93)	Defines recipient of supply.
CGST Act – Section 2(84)	Defines “person”; read with related/distinct-person provisions.
CGST Act – Section 15	Value of taxable supply and related-party valuation.
CGST Act – Section 20	ISD mechanism and distribution of input-service credit.
CGST Act – Section 25(4)/(5)	Registrations of the same person in different States/UTs are treated as distinct persons in the specified manner.
Schedule I, Para 2	Supply between related persons or distinct persons in course/furtherance of business can be supply even without consideration.
Schedule I, Para 4	Import of services by a person from a related person or own establishment outside India in business can be supply even without consideration.
CGST Rules – Rule 28	Valuation of supplies between distinct/related persons.
CGST Rules – Rule 29	Valuation of supplies between principal and agent.
CGST Rules – Rule 30	Cost-based valuation where applicable.
CGST Rules – Rule 31	Residual valuation where the preceding rules cannot determine value.
CGST Rules – Rule 39	ISD distribution mechanism; read with the amended provisions applicable from 1 April 2025.

CBIC's published CGST Act text contains the ISD provisions in Section 20 and Schedule I treats specified related/distinct-person supplies as supplies even without consideration. citeturn0search0turn0search22

3. Distinct Persons – Section 25(4) & 25(5)

This is one of the most important provisions for multi-State businesses.

ExampleABC Infrastructure Ltd has GST registrations in Telangana, Maharashtra and Karnataka under the same PAN. The Telangana registration and Maharashtra registration are treated as distinct persons under Section 25(4). A service supplied from one registration to another can therefore require GST analysis even though the legal entity is the same.

Page reference: CGST Act Section 25(4) and Section 25(5) — distinct-person treatment for registrations in different States/UTs and specified registrations.

4. Schedule I – Supply Without Consideration

Schedule I is critical because it creates specified taxable supplies even where no separate consideration is charged.

Schedule I entry	Practical meaning
Para 1	Permanent transfer/disposal of business assets where ITC has been availed.
Para 2	Supply of goods/services between related persons or distinct persons in course/furtherance of business, subject to the employee-gift proviso.
Para 3	Specified principal-agent supplies.
Para 4	Import of services by a person from a related person or own establishment outside India in course/furtherance of business.

CBIC's published Schedule I states these categories expressly. citeturn0search22

5. Valuation – Section 15 & Rule 28

Once a taxable supply is identified, valuation becomes the next question.

Rule 28 approach	Practical meaning
Open market value	Start with the value of a comparable/open-market supply where available.
Like-kind and quality	Where OMV cannot be determined, use the prescribed sequence.
Rule 30	Cost-based method, generally 110% of cost of production/manufacture/acquisition or provision, where Rule 30 applies.
Rule 31	Residual method when value cannot be determined under preceding rules.
Second proviso to Rule 28	Where recipient is eligible for full ITC, the value declared in the invoice is deemed to be the open-market value of the goods/services supplied.

CBIC's valuation rules page contains Rule 28 and the cost/residual valuation sequence. citeturn0search5

Full-ITC exampleHO provides an internal taxable support service to a branch, and the branch is eligible for full ITC of the tax. If the Rule 28 second proviso applies, the value declared in the invoice can be treated as the open-market value for this purpose.

6. Full ITC Recipient – Why It Matters

The full-ITC proviso to Rule 28 is a major practical relief for intra-group/intra-company supplies. However, “full ITC” must be genuine and available under the law to the recipient for the relevant supply.

Do not use the proviso mechanically. If the recipient has exempt supplies, blocked credit, restrictions or other circumstances preventing full ITC, the finance team should not simply assume the proviso is available.

7. Cross-Charge vs ISD

These mechanisms solve different problems.

Issue	Cross-charge	ISD
What is it?	Taxable supply between GST persons/registrations.	Distribution of eligible input-service ITC.
Document	Tax invoice under normal GST invoicing provisions.	ISD invoice/document under Section 20 and Rule 39.
Underlying activity	An identifiable supply/service can be involved.	Third-party input service tax credit is being distributed.
Output GST?	Yes, where the cross-charge is taxable.	ISD distributes credit; it is not a normal outward supply invoice.
Common example	HO provides taxable management support to State GSTIN.	HO receives common legal/software input service invoice and distributes eligible ITC to recipient GSTINs.

CBIC's ISD materials define ISD as an office receiving input-service invoices and distributing the related credit to same-PAN recipients. citeturn0search24

8. ISD – Current Framework

For current compliance, the post-1 April 2025 ISD framework is especially important. GST Council recommendations led to amendments to Section 2(61), Section 20 and Rule 39, including treatment of specified inter-State reverse-charge input services within the ISD mechanism. citeturn0search20

Practical control: Maintain a separate ISD register showing supplier invoice, nature of input service, eligible/ineligible ITC, recipients, allocation basis and GSTR-6 reporting.

Rule 39 prescribes the distribution mechanism, including attribution to a specific recipient and pro-rata distribution where services are attributable to multiple/all recipients. citeturn0search1turn0search27

9. Common Expenses – Where the Real Difficulty Starts

Expense	Typical GST question
Audit/legal fee	Is the vendor invoice attributable to one GSTIN, multiple GSTINs or all registrations?
ERP/software	Is the service used centrally, specifically or by all registrations?
Corporate insurance	Who receives the service and which registrations benefit?
Advertising	Which registrations' taxable business benefits from the service?
HO rent	Is it attributable to HO only or used for branch operations?
Professional fees	Is it a common service requiring ISD distribution or an actual HO service requiring cross-charge?

10. HO / Branch Services

A head office may provide finance, HR, IT, procurement, management, legal, internal audit or other support to State registrations. The correct mechanism depends on the facts.

ExampleHO has a dedicated finance team performing monthly MIS and accounting support exclusively for the Karnataka GSTIN. This is different from an HO receiving a third-party common software invoice that is merely distributed as ITC. The first may require cross-charge analysis; the second may be an ISD issue.

11. Employee & Common Corporate Costs

Salary cost itself is generally outside GST under Schedule III where an employee acts in the course of employment. But that does not mean every HO cost involving employees is automatically outside GST.

Important distinctionEmployee salary is one thing. A taxable service supplied by HO to another GST registration using an HO employee team can be another matter. Identify the recipient and the actual service before deciding the GST treatment.

12. Capital Goods Between Registrations

Transfer or use of capital goods between distinct persons needs separate analysis. If business assets are transferred or supplied between registrations, consider Schedule I, Section 18 and the relevant valuation/documentation provisions.

Maintain asset-level GSTIN mapping, transfer date, original ITC, depreciation records, invoice and receiving-registration details.

13. Stock Transfers

Goods moved between distinct GST registrations can be supplies even without consideration where Schedule I applies. This is different from a mere movement within the same registration where no supply occurs.

Dispatch GSTIN→Distinct Person?→Schedule I→Valuation Rule 28→Tax Invoice→Receiving GSTIN ITC

14. Foreign Related Parties & RCM

Schedule I specifically covers import of services by a person from a related person or from the person's own establishment outside India in the course or furtherance of business, even without consideration.

ExampleIndian subsidiary receives management/support services from its foreign parent without a separately charged fee. The fact that no invoice consideration is paid does not end the GST analysis. Examine Schedule I, import-of-service/place-of-supply provisions and reverse charge under the IGST/CGST framework.

For cross-border transactions, also examine IGST Act Sections 2(6), 13, 7/8 as applicable and Section 5(3)/(4), along with valuation and transfer-pricing documentation.

15. Loans, Guarantees & Funding

Not every inter-company money movement is a taxable service. Funding, loan principal movements, capital contributions and settlements must be distinguished from interest/financial services or other taxable supplies.

Do not duplicate the corporate-guarantee article. Corporate guarantees have their own detailed valuation framework and are covered separately on your website. Here the focus is only on identifying whether a funding/loan movement is a supply and how it interacts with related/distinct-person analysis.

16. Invoicing & Returns

Transaction	Typical document	Return/control
Cross-charge taxable service	Tax invoice	GSTR-1 + GSTR-3B of supplier GSTIN; recipient ITC reconciliation.
Stock transfer between distinct persons	Tax invoice	Outward supply reporting + recipient ITC.
ISD distribution	ISD invoice/document	GSTR-6 and recipient ITC.
Foreign related service under RCM	Applicable RCM documentation/self-invoice where required	RCM liability + ITC subject to eligibility.

CBIC's invoice rules specify the information required on an ISD invoice/credit note, including ISD and recipient GSTINs, serial number, date and amount of credit distributed. citeturn0search3

17. Accounting Controls

Register	Minimum fields
GSTIN relationship master	PAN, GSTIN, State, entity/branch, related/distinct status.
Inter-company service register	Supplier GSTIN, recipient GSTIN, service, basis, value, GST.
Common-input register	Vendor, invoice, service, eligible ITC, ISD recipient/allocation.
Cross-charge register	Employee/resource cost, service description, valuation basis, invoice.
ISD register	Invoice, ITC, attribution, turnover basis, GSTR-6 reference.
Foreign group register	Related party, service, consideration, RCM, valuation and POS.

18. Practical Cases

Case	Situation	Practical analysis
1	HO finance team supports Telangana and Karnataka GSTINs	Identify taxable HO service and examine cross-charge/valuation.
2	HO receives common legal invoice for all States	Examine ISD distribution under current Section 20/Rule 39 framework.
3	Same PAN, different State GSTIN	Distinct-person analysis under Section 25(4)/(5).
4	Goods transferred from Maharashtra GSTIN to Telangana GSTIN	Schedule I + Rule 28 valuation + tax invoice.
5	Branch receives taxable HO service and has full ITC	Check Rule 28 second proviso.
6	Common software invoice received by HO	Determine whether ISD distribution is required/appropriate under current rules.
7	Foreign parent provides management service without fee	Schedule I Para 4 + import of services + RCM/POS analysis.
8	HO employee cost allocated to branch	Salary itself is not automatically a taxable supply; identify whether HO is supplying a service.
9	Common advertising benefits three GSTINs	Identify recipient/allocation and consider ISD or taxable inter-GSTIN service as applicable.
10	Capital asset moved between State registrations	Distinct-person/Schedule I and ITC/asset records need review.
11	Inter-company journal entry only	Journal entry alone does not decide GST; identify underlying transaction.
12	Group company provides free technical support	Related-person/Schedule I and valuation analysis required.

19. GST Audit Questions

List all GST registrations under the PAN.
Which registrations are distinct persons?
Which group entities are related persons under Section 15?
What inter-company services were provided?
Why was GST not charged on a particular HO/branch activity?
Was Schedule I considered?
How was Rule 28 value determined?
Was the full-ITC proviso actually available?
Why was a cost allocation made without a tax invoice?
Was the transaction an ISD distribution or a taxable cross-charge?
Are common input services properly attributed?
For foreign group services, was RCM examined?
Do inter-company ledgers reconcile to GST returns?
Are stock transfers supported by tax invoices and e-way documents where required?

20. Common Mistakes

1. “Same company, so no GST.”Different State GST registrations are distinct persons under Section 25(4)/(5).

2. “No money charged, so no supply.”Schedule I can deem specified related/distinct-person transactions to be supplies without consideration.

3. “ISD and cross-charge are the same.”ISD distributes input-service ITC; cross-charge is a taxable supply mechanism.

4. “Any value is acceptable under Rule 28.”The prescribed valuation sequence and conditions must be followed.

5. “Full ITC proviso always applies.”Confirm the recipient genuinely qualifies for full ITC.

6. “All HO employee costs are outside GST.”Employee salary and taxable services supplied by an HO are different questions.

21. Decision Matrix

Question	Next step
Same PAN, different State GSTIN?	Apply distinct-person analysis under Section 25(4)/(5).
Related entities?	Check Section 15 related-person rules and Schedule I.
Supply without consideration?	Check Schedule I before concluding “no GST”.
Common third-party input service?	Analyse current ISD framework and Rule 39.
HO actually provides service to branch?	Analyse cross-charge and Rule 28 valuation.
Recipient eligible for full ITC?	Check Rule 28 second proviso.
Foreign related service?	Check Schedule I Para 4, IGST POS and RCM.

22. FAQs

1. Are branches in different States distinct persons?Yes, registrations of the same person in different States/UTs are treated as distinct persons under Section 25(4)/(5).

2. Is GST payable between two GSTINs of the same company?It depends on whether there is a supply and whether Schedule I applies; the fact that the PAN is the same does not by itself eliminate GST.

3. What is Rule 28?It prescribes valuation of supplies between related persons and distinct persons in specified circumstances.

4. What if the recipient has full ITC?The second proviso to Rule 28 can deem the invoice value to be open-market value where its conditions are satisfied.

5. Is cross-charge mandatory for every HO cost?No single formula applies to every cost. Determine whether there is a taxable supply and separately analyse whether the expense is an input service requiring ISD distribution.

6. What is ISD?An Input Service Distributor receives input-service tax invoices and distributes eligible ITC to same-PAN recipients according to Section 20 and Rule 39.

7. Can stock transfers be taxable without consideration?Yes, specified supplies between distinct persons can fall under Schedule I.

8. Is foreign parent support without a fee taxable?It can be, because Schedule I Para 4 specifically covers specified imports of services from related persons/own establishments outside India.

9. Is an inter-company journal entry enough documentation?No. The underlying contract, service, valuation, invoice and GST return treatment should be documented.

10. Should a group maintain a GSTIN relationship master?Yes. It is one of the most useful controls for multi-registration businesses.

23. Documentation Checklist

PAN-wise GSTIN master and State mapping.
Related-person relationship chart.
Distinct-person registration list.
Inter-company service agreements.
HO/branch cost allocation policy.
Cross-charge invoice register.
ISD registration and GSTR-6 records.
Vendor input-service invoice register.
Rule 28 valuation working.
Full-ITC eligibility evidence where Rule 28 proviso is used.
Stock-transfer tax invoices and movement records.
Foreign related-party service agreements and RCM workings.
Inter-company reconciliation to GSTR-1, GSTR-3B and recipient ITC.

Key Takeaway

For a multi-GSTIN business, the question is not simply “Is this an internal transaction?”. GST looks at the legal identity of the GST registrations, the relationship between parties, the nature of the supply, Schedule I, valuation under Rule 28, and the correct ITC mechanism.

Map GSTINs→Check related/distinct status→Identify supply→Check Schedule I→Choose Cross-Charge / ISD→Apply Rule 28→Invoice & Reconcile

For businesses with multiple project registrations, the strongest control is a GSTIN-to-GSTIN transaction register linking every inter-company service, stock transfer, common input service, valuation working and GST return.