Gst on advance paid to subsidiary company
This query is : Resolved
09 January 2019
Dear,
Please suggest , we are paying advance to our subsidiary company and management decide subsidary company will pay interest . Subsidiary company also sale some material to .
Please suggest, , GST will be impact
Please suggest , we are paying advance to our subsidiary company and management decide subsidary company will pay interest . Subsidiary company also sale some material to .
Please suggest, , GST will be impact
09 January 2019
Since the transaction involves supply of Goods, GST in not levied at the time of advances. GST will be levied only when the actual supply of Goods is made.
There is no GST on Interest element.
Hope this clarifies your query.
There is no GST on Interest element.
Hope this clarifies your query.
09 January 2019
Dear,
my queries is , We are paying some amount to Our subsidiary company for their operation and they are also supply to raw material to us . But they are not able to sold the goods according to payment received from us . As per management decision -Difference amount between Sale- Payment , subsidiary will give interest to us as per balance availability according to quarterly basis . physicallly they are not giving any interest . Just complied the accounting entry , of both company.
So , GST implication will applicable of any one .
my queries is , We are paying some amount to Our subsidiary company for their operation and they are also supply to raw material to us . But they are not able to sold the goods according to payment received from us . As per management decision -Difference amount between Sale- Payment , subsidiary will give interest to us as per balance availability according to quarterly basis . physicallly they are not giving any interest . Just complied the accounting entry , of both company.
So , GST implication will applicable of any one .
09 January 2019
not resolved, issue not clear
26 July 2024
In the scenario you’ve described, where your company is paying an advance to a subsidiary and the subsidiary provides interest on the difference between the advance and the actual sale amount, there are several GST implications to consider:
### **1. GST on Advance Payment to Subsidiary**
**a. **Advance Payment for Future Supply:**
- **Nature of Advance:**
- If the advance is paid for future supply of goods or services, GST should be applied to the advance payment. This applies even if the advance is paid to a subsidiary.
- **GST Applicability:**
- The subsidiary company should issue a receipt voucher for the advance payment and charge GST on the advance if it is considered as payment for a future supply of goods or services.
- **Reporting:**
- The advance payment should be reported in GSTR-1 by the subsidiary company and in the relevant section of GSTR-3B. The paying company can claim Input Tax Credit (ITC) on the GST paid on the advance.
**b. **No Physical Supply Yet:**
- The fact that physical goods have not been supplied yet does not negate the requirement to charge GST on the advance payment if it is for future supplies.
### **2. GST on Interest Payment**
**a. **Interest on Advances:**
- **Interest Charges:**
- Interest on advances is considered a taxable supply of service under GST. The subsidiary company should charge GST on any interest paid or accounted for in the books.
- **GST Rate:**
- The standard rate of GST on financial services, including interest, is 18%.
- **Documentation:**
- Even if the interest is not physically paid but just accounted for in the books, GST should still be applied based on the accounting entry.
**b. **Accounting for Interest:**
- If interest is recorded in the accounts but not physically paid, the subsidiary should still issue a tax invoice for the interest and charge GST.
- **Reporting:**
- The subsidiary must report the interest charges and GST in GSTR-1 and GSTR-3B. Similarly, the paying company should account for this interest in their GST returns.
### **3. Supply of Goods by Subsidiary**
**a. **Sale of Goods:**
- **GST on Goods Sold:**
- GST will be applicable on the sale of goods by the subsidiary to your company. The subsidiary should issue a tax invoice with GST charged on the sale value of the goods.
- **ITC:**
- Your company can claim ITC on the GST paid for the goods purchased from the subsidiary.
### **4. Compliance and Reporting**
**a. **For the Paying Company:**
- **Advance Payment:**
- Record the advance payment in the GST returns (GSTR-3B and GSTR-1) if GST is charged.
- **Interest Charges:**
- Account for GST on interest if invoiced, and report it in GSTR-3B and GSTR-1.
**b. **For the Subsidiary Company:**
- **Advance Receipt:**
- Issue a receipt voucher or invoice for the advance received and charge GST if applicable.
- **Interest Invoicing:**
- Issue a tax invoice for the interest charged and charge GST at 18%.
- **Sale of Goods:**
- Issue tax invoices for the sale of goods with applicable GST.
### **Summary**
- **Advance Payment:** GST is applicable on advance payments made to the subsidiary if it is for future supplies. The subsidiary must issue a receipt voucher and charge GST.
- **Interest on Advances:** GST is applicable on interest charges. Even if not physically paid, the subsidiary should invoice the interest and charge GST.
- **Sale of Goods:** GST is applicable on the sale of goods by the subsidiary. Ensure proper invoicing and ITC claims.
Ensure all transactions are properly documented and reported in the GST returns. For specific cases or complex scenarios, consulting with a GST professional or tax advisor is recommended.
### **1. GST on Advance Payment to Subsidiary**
**a. **Advance Payment for Future Supply:**
- **Nature of Advance:**
- If the advance is paid for future supply of goods or services, GST should be applied to the advance payment. This applies even if the advance is paid to a subsidiary.
- **GST Applicability:**
- The subsidiary company should issue a receipt voucher for the advance payment and charge GST on the advance if it is considered as payment for a future supply of goods or services.
- **Reporting:**
- The advance payment should be reported in GSTR-1 by the subsidiary company and in the relevant section of GSTR-3B. The paying company can claim Input Tax Credit (ITC) on the GST paid on the advance.
**b. **No Physical Supply Yet:**
- The fact that physical goods have not been supplied yet does not negate the requirement to charge GST on the advance payment if it is for future supplies.
### **2. GST on Interest Payment**
**a. **Interest on Advances:**
- **Interest Charges:**
- Interest on advances is considered a taxable supply of service under GST. The subsidiary company should charge GST on any interest paid or accounted for in the books.
- **GST Rate:**
- The standard rate of GST on financial services, including interest, is 18%.
- **Documentation:**
- Even if the interest is not physically paid but just accounted for in the books, GST should still be applied based on the accounting entry.
**b. **Accounting for Interest:**
- If interest is recorded in the accounts but not physically paid, the subsidiary should still issue a tax invoice for the interest and charge GST.
- **Reporting:**
- The subsidiary must report the interest charges and GST in GSTR-1 and GSTR-3B. Similarly, the paying company should account for this interest in their GST returns.
### **3. Supply of Goods by Subsidiary**
**a. **Sale of Goods:**
- **GST on Goods Sold:**
- GST will be applicable on the sale of goods by the subsidiary to your company. The subsidiary should issue a tax invoice with GST charged on the sale value of the goods.
- **ITC:**
- Your company can claim ITC on the GST paid for the goods purchased from the subsidiary.
### **4. Compliance and Reporting**
**a. **For the Paying Company:**
- **Advance Payment:**
- Record the advance payment in the GST returns (GSTR-3B and GSTR-1) if GST is charged.
- **Interest Charges:**
- Account for GST on interest if invoiced, and report it in GSTR-3B and GSTR-1.
**b. **For the Subsidiary Company:**
- **Advance Receipt:**
- Issue a receipt voucher or invoice for the advance received and charge GST if applicable.
- **Interest Invoicing:**
- Issue a tax invoice for the interest charged and charge GST at 18%.
- **Sale of Goods:**
- Issue tax invoices for the sale of goods with applicable GST.
### **Summary**
- **Advance Payment:** GST is applicable on advance payments made to the subsidiary if it is for future supplies. The subsidiary must issue a receipt voucher and charge GST.
- **Interest on Advances:** GST is applicable on interest charges. Even if not physically paid, the subsidiary should invoice the interest and charge GST.
- **Sale of Goods:** GST is applicable on the sale of goods by the subsidiary. Ensure proper invoicing and ITC claims.
Ensure all transactions are properly documented and reported in the GST returns. For specific cases or complex scenarios, consulting with a GST professional or tax advisor is recommended.
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