RCM on related party transaction.

This query is : Resolved

k chakraborty (Querist)
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21 June 2024 1.If partner transfer asset purchased under his name to the partnership firm, will RCM be applicable to that transaction?
note that the partner is not registered under GST but the firm is.
2.Does the partner need to issue bill of supply for this transaction? ( as related party transaction is considered supply under GST.)

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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10 July 2024 Let's address each of your questions regarding the transfer of assets from a partner to a partnership firm under GST:

### 1. Applicability of RCM on Asset Transfer:

When a partner transfers an asset purchased under their name to the partnership firm, the transaction does not attract Reverse Charge Mechanism (RCM). Here’s why:

- **RCM under GST:** RCM applies when certain services are received from an unregistered supplier or in specified cases where the recipient is liable to pay GST instead of the supplier.
- **Asset Transfer by Partner:** The transfer of an asset from a partner to the partnership firm is not a service but rather a transfer of ownership of goods.
- **No RCM Applicability:** Since RCM applies to services and not goods, and the transaction here involves transfer of ownership of goods (asset), RCM does not apply.

### 2. Requirement of Bill of Supply:

In the context of GST, a Bill of Supply is required for taxable supplies made by a registered person who is not charging GST. However, in the case of transfer of an asset from a partner to a partnership firm:

- **Nature of Transaction:** This transaction is considered a supply under GST because it involves related parties (partner and partnership firm).
- **Taxability:** The transfer of asset by the partner to the firm may be considered a taxable supply under GST if the partner is registered and the asset is a taxable supply.
- **Invoice Requirement:** Instead of a Bill of Supply, the partner should issue a Tax Invoice. A Tax Invoice is issued for taxable supplies made by a registered person. Since the partner is not registered under GST, they cannot issue a Tax Invoice. However, the partnership firm (if registered) can issue a Tax Invoice for recording the acquisition of the asset from the partner.
- **Related Party Transaction:** Even though it’s a related party transaction, the GST implications depend on whether the partner is registered under GST and whether the transfer involves a taxable supply.

### Conclusion:

1. **RCM Applicability:** RCM does not apply to the transfer of an asset from a partner to a partnership firm because it’s not a service but a transfer of ownership of goods.

2. **Invoice Requirement:** The partner does not issue a Bill of Supply; instead, if the partner is registered under GST, they should issue a Tax Invoice. The partnership firm, if registered, can issue a Tax Invoice to record the acquisition of the asset.

Always ensure compliance with GST regulations and consider seeking advice from a GST expert or tax advisor for specific transactions to ensure proper compliance and documentation.