Corporate groups often centralise IT, HR, legal, and finance functions to achieve economies of scale. When these services are shared across group entities, GST implications arise under the distinct persons and related party provisions.
This article explains the GST treatment of centralised shared services.
The Supply Question
When one group entity provides services to another, the transaction is a supply under GST. If the entities are distinct persons (different GSTINs) or related parties, the supply must be valued at arm’s length under Section 15(4) read with Rule 28.
ISD vs Cross-Charge
- ISD: For common input services where the invoice is received by one entity but the benefit accrues to multiple entities. Mandatory from April 2025.
- Cross-Charge: For internally generated services (e.g., centralised management, IT support) provided by one entity to others.
Valuation Under Rule 28
Where the recipient is eligible for full ITC, the value can be nil under the second proviso to Rule 28. Where full ITC is not available, the value must be at open market value.
Compliance for Shared Service Centres
- Obtain ISD registration if distributing ITC on common input services.
- For internally generated services, use the cross-charge mechanism.
- Apply Rule 28 valuation correctly.
- Maintain documentation of cost allocation.
- File GSTR-6 for ISD distributions.
Conclusion
Centralised shared services require careful GST structuring. The ISD mechanism is mandatory for ITC distribution on common input services, and cross-charge applies for internally generated services.
At Anuj Desai & Associates, we provide expert advisory services on GST for shared service centres and group entities. Our team can help you structure your shared services efficiently.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.