GIFT City IFSC units often have related entities in the Domestic Tariff Area (DTA) — that is, the rest of India. Services provided between an IFSC unit and its domestic group entities raise complex GST questions regarding place of supply, export of services, and related-party transaction rules.
This article explains the GST treatment of services between an IFSC unit and its domestic group entities.
The IFSC Unit and DTA Relationship
An IFSC unit is a distinct person for GST purposes from its domestic group entities. Under Section 25(4) of the CGST Act, establishments of the same person in different states or territories are treated as distinct persons.
This means that transactions between an IFSC unit and its domestic group entities are treated as supplies between distinct persons, even if they are part of the same legal entity.
Place of Supply Rules
The place of supply for services between an IFSC unit and its domestic group entity depends on the nature of the service:
- Services provided by the IFSC unit to the domestic entity: If the domestic entity is registered in India, the place of supply is the location of the recipient. This makes it an inter-state supply, and IGST applies.
- Services provided by the domestic entity to the IFSC unit: The place of supply is the location of the IFSC unit. This is also an inter-state supply, and IGST applies.
Export of Services Treatment
Services provided by an IFSC unit to offshore clients are treated as zero-rated exports under GST. However, services provided by an IFSC unit to its domestic group entities are not exports — they are domestic supplies subject to GST.
Related Party Transactions
Under Section 15(4) of the CGST Act , the value of supplies between related parties must be at arm's length. If the value declared is less than the open market value, the GST authorities may determine the value based on the open market value.
This has significant implications for IFSC units that provide services to their domestic group entities at concessional rates.
RCM on Services from Domestic Entities
When an IFSC unit receives services from its domestic group entity, the IFSC unit is liable to pay GST under RCM if the supplier is not registered. The IFSC unit can claim ITC on the RCM payment if it is registered and the service is used for business purposes.
Compliance Checklist for IFSC Units
- Treat transactions with domestic group entities as inter-state supplies.
- Determine the correct place of supply for each service.
- Charge IGST on services provided to domestic entities.
- Report related-party transactions at arm's length value.
- Pay GST under RCM on services received from unregistered domestic entities.
- Maintain proper documentation for all inter-entity transactions.
Conclusion
Services between an IFSC unit and its domestic group entities are subject to GST as inter-state supplies between distinct persons. Proper documentation, valuation, and reporting are essential to avoid disputes with GST authorities.
At Anuj Desai & Associates, we provide expert advisory services on GST for IFSC units and their domestic group entities. Our team can help you structure inter-entity transactions and ensure compliance.
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.