The Goods and Services Tax (GST) Council is expected to provide significant tax relief to foreign air and shipping lines operating in India by easing the related-party transaction clause under the GST laws. This relief, set to be discussed at the September 9 meet, would reduce the compliance burden for these companies, a senior government official said.
“The related-party transaction is currently taxable at 18 percent under GST, and the compliance requirements are very stringent for foreign companies. To improve the ease of doing business, the fitment committee has suggested offering tax relief, which will be deliberated by the GST Council,” the official told Moneycontrol.
When subsidiary companies in India import any services from their parent companies abroad, they are levied an 18 percent GST on the transaction at the time of import. The compliance around this is particularly challenging for foreign airlines and shipping lines, leading to several tax notices being issued by authorities for non-payment of GST on such services.
“All companies with related-party transactions, including airlines and shipping lines, face a compliance burden due to the current GST regulations. The government is considering exempting the payment of GST on import of services at the time of import, allowing the subsidiary companies to make the payment at the time of disbursement of services instead,” the official told Moneycontrol.
The proposed relaxation would mean that instead of paying the GST upfront during the import of services, foreign airlines and shipping companies could defer the payment until they discharge the services. This change could significantly reduce the immediate tax burden and streamline operations for these companies.
The official went on to explain the rationale behind the proposal: “If the Indian subsidiary is not paying GST on the import of services immediately but is settling the entire tax later when the services are supplied, the tax department should not intervene. This would allow the companies to manage their cash flow better while still fulfilling their tax obligations.”
The Council may explore the possibility of making any necessary legal amendments to support this change. "Easing the related-party clause under GST is likely if companies are receiving full input tax credit (ITC). Otherwise, it only adds to their compliance burden,” the official added.
Foreign airlines, including Finnair, KLM Royal Dutch Airlines, Qatar Airways, Virgin Atlantic, Etihad, and Emirates, and shipping lines such as Saudi Airlines and Air Arabia have been subject to GST notices regarding non-payment of taxes on imported services. The expected changes would provide much-needed compliance relief to these and other companies operating under similar conditions.
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