Holding companies often provide management, administrative, and support services to their subsidiaries for a fee. These management fees attract GST at 18% and are subject to the related party valuation rules under Section 15(4) read with Rule 28.
This article explains the GST treatment of management fees.
Taxability of Management Fees
Management services provided by a holding company to its subsidiaries are a supply of services under GST. The applicable rate is 18% . The holding company must issue a tax invoice and charge GST on the management fees.
Valuation Under Rule 28
Where the holding company and subsidiary are related persons, the value of the supply must be at arm’s length under Section 15(4) read with Rule 28. The CBIC has clarified that cross-charge value shall be considered as the deemed open market value irrespective of whether cost components such as salary are included.
ITC for Subsidiaries
The subsidiary can claim ITC on the GST paid for management fees, provided the services are used for business purposes and the credit is not blocked under Section 17(5).
The September 2025 Rationalisation
Following the September 2025 GST rate rationalisation, where a holding company provides additional chargeable services (for example, centralised management for a fee), those services are taxable at 18%. The holding of shares itself is not a supply.
Compliance Steps
- Issue proper tax invoices for management fees.
- Charge GST at 18%.
- Apply Rule 28 valuation correctly.
- Maintain documentation of the services provided.
- Ensure that the subsidiary claims ITC correctly.
Conclusion
Management fees charged by a holding company to subsidiaries attract GST at 18%. Proper invoicing, valuation, and documentation are essential.
At Anuj Desai & Associates, we provide expert advisory services on GST for holding company and subsidiary transactions. Our team can help you structure your management fee arrangements.
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.