Exclusive: Major GST relief for foreign airlines, shipping lines on cards after elections

Government mulls easing GST compliance for foreign firms, exempting airlines and shipping lines from paying GST on import.

The government is working on easing the 'related party transaction’ clause under the Goods and Services Tax, for foreign companies in India.

This is likely to happen within 100 days after the elections, which will exempt airlines and shipping lines from paying GST at the time of import of services, but which they can pay at the time of disbursal of services, a senior government official said.

As per GST laws, related party transaction refers to the transfer of goods or services between entities which are under common ownership or management.

“All companies with related party transactions, including airlines, shipping lines, import supplies from their parent company outside India. Under GST, the related party transaction is taxable at 18 percent and its compliance is very stringent for foreign companies. For ease of doing business and reducing compliances, the government is discussing easing it. Discussion is happening on these lines,” the official told Moneycontrol.

The tax department had sent out several notices to all airlines and shipping lines, who have their parent company outside India, for non-payment of GST on import of services. All foreign airlines such as Finnair, KLM Royal Dutch Airlines, Qatar Airways, Virgin Atlantic, Etihad, Emirates, Saudi Airlines, Air Arabia, Oman Air, and Kuwait Airways and British Airways and shipping lines have received GST notices in this regard.

What relief is the government considering 

Compliance relief is likely for companies with related party transactions as an evolution of GST. The government is currently discussing exempting payment of GST for related party transactions, wherein full input tax credit (ITC) is eligible. The subsidiary companies will thus be allowed payment of GST later, at the time of discharge of services. Any change in law, if required for this, may also be examined, he said.

The issue will be examined in detail by the GST’s fitment committee and will be placed before the Council just after general elections, he said.

“Easing of the related party clause under GST is likely, if they are getting full ITC. Else, it is increasing their compliance burden. The GST authorities are discussing how this clause is being interpreted by companies and the tax department,” the official said.

Most of the airlines that Moneycontrol had spoken to earlier said that instead of contesting the tax demand they intended to pay up the GST demand and claim the entire amount as input tax credit later.

What does the relief imply 

If a subsidiary Indian company is importing services from the parent company and does not pay GST on it, the tax authorities detect it and send a demand notice. The deemed supply is taxable at 18 percent for which input tax credit may be received later at the time of further supplies by the company. But if the Indian company is not paying GST on import of services, and is paying the entire tax later at the time of supply of services, the tax department should not bother, the official explained.