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GST on gift from father to son

15 May 2019

Both father and son are registered person under GST.

Father has given machinery as gift to Son at the book value of Rs 50 lakhs

whether gst is applicable on such gift

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16 Replies

MY Indians Tv (292 Points)
Replied 15 May 2019

Supply of Goods or Services between Related Persons

Any of the following persons can be termed related persons, making GST applicable:

Members of the same family

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CA Rashmi Gandhi (Chartered Accountant) (86323 Points)
Replied 15 May 2019

On analyzing the term “supply” under Section 7 of the CGST Act, 2017; the relevant part of the said provision reads as under:

All forms of supply of goods or services or both, such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. From the above provision, one can conclude that to constitute a “supply” following elements are required to be satisfied:-

It should be made in the course or furtherance of business

There should be some consideration involved

Apparently, it seems that gifts do not fall under supply but before reaching at the final conclusion we need to analyze the same in depth and, therefore, we need to refer to some other provisions under the Act. The provision related to availability of ITC on gifts has been dealt with at two specific places under the GST Law. Under Section 17 (5) (h) of CGST Act, 2017 the relevant provision of the said provision specifies that:

Notwithstanding anything contained in sub-section (1) of Section 16 and subsection (1) of Section 18, input credit shall not be available in respect to the following namely:-

“Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.”

So you have to reverse ITC on such machine not to pay tax...

2 Like

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 15 May 2019

GST not applicable for the said Gift.
But, You can reverse the Input Tax for the Machinery related in case it's purchased in GST regime.

CA Haritha Komma (Chartered Accountant) (1147 Points)
Replied 15 May 2019

It is deemed supply (if no consideration received from son) as it is transaction b/w 2 related parties as per schedule I. The invoice can be raised at any value if the son is eligible for ITC as per Rule 28 of CGST Rules.

The father has 2 options:

1. Reverse ITC as per sec 17(5) of CGST Act an amount calculated as per sec 18 of CGST Act; or

2. Pay GST on value determined on reasonable basis to avoid dispute

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 15 May 2019

I agreed & Thanks to Your view Mr CA Haritha Komma.,

Here no more activity as Supply. If it's treated as supply then Father can make as per above view.

But., Father given its as GIFT. If gift then no need to take any of the supplies related activities under GST. In case the Machinery purchased under GST by Father then the INPUT TAX will reversible...

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CA Sunil (Internal Auditor) (204 Points)
Replied 15 May 2019

Condition for GST levy

1. There is a taxable incident of Supply of Goods in the course of or for continuance of business from one person to another person assuming distinct person (ie separate GST registration ) - satisfied

2. No Consideration is free of cost...- not satisfied.

However for transaction between related parties for no consideration or lesser consideration GST is still applicable. The term related party includes members of the same family.Now since it is sale between RP, the Valuation to be done for gift transaction as per the valuation guidelines.

Aditi Ahuja (Financial Advisor) (106 Points)
Replied 15 May 2019

You will not be required to pay GST on that gift. The simple reason is that GST is applied on a particular goods and services at the time of purchase. And as you have said that it is gifted to you from your father, that means your father has already purchased that machine. And later on no GST tax is going to applied that machine. But yes as already many of the persons has said, if the machinery had purchased with GST calculation, an input tax will be reversible.

Padmanathan Kv (2127 Points)
Replied 15 May 2019

In my Opinion it would be treated as supply as per section 7 read with schedule I and valuation will be as per proviso 2 of rule 28 ie the invoice value.Moreover the son is eligible to take ITC of tax paid. This will be more conservative approach to avoid litigation in future.

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 15 May 2019

The all the provisions will be follow or attract if its' to SALE. But, Not applicable for GIFT...

the term “supply” under Section 7 of the CGST Act, 2017; as Supply following elements are required to be satisfied:-

-- It's should be made in the course or furtherance of busines

-- There should be some consideration involved.

So, It's not furtherance of Business...

In the same way ;

Under Section 17 (5) (h) of CGST Act, 2017 the relevant provision of the said provision specifies that:

Notwithstanding anything contained in sub-section (1) of Section 16 and subsection (1) of Section 18, input credit shall not be available in respect to the following namely:-

“Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.”

As per above GST not applicable and the said ITC will be reversible if it's given s GIFT. In case it's sale proceeds then GST applicable.

Padmanathan Kv (2127 Points)
Replied 15 May 2019

The word used in section 7 is "supply includes" hence it is a inclusive definition. Now the gift given is machinery used in the business hence it is in the course of business. My view is to charge GST as ITC is available to son. if no GST is charged and in future it is held to be supply at a later stage ITC may not be available too. my opinion is to charge gst and let son take ITC

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RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 15 May 2019

If GST charged then its not GIFT.... Treat Only SALES.

Padmanathan Kv (2127 Points)
Replied 15 May 2019

Raja Sir where is the question of sale in GST the levy is on supply - which has been specifically defined in section 7 and deemed supply are defined in schedule I. Let me give you an example to explain my understanding- If the father had gifted a used computer to a charitable institution it will not be treated as supply because it is not in the course of business. Here he is supplying to son who will use in the business. as far as the transaction is considered it is only a supply between two related persons without consideration and covered under schedule I. This is only my opinion on a conservative approach