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RPT in view of availment of msme benefit

Jayanta Bandyopadhyay (363 Points)

05 April 2025

Family owned unlisted public ltd co sell all produces to LLP [ sister concern] so that both can take interest subvention scheme and benefits of MSME.

LLP gets export packing credit benefit and always makes advance payment to pub ltd co against orders.

Price is as per auction price o similar products

Are these lawfully OK?

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Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (7203 Points)
Replied 05 April 2025

The arrangement between the family-owned unlisted public limited company and the LLP (sister concern) raises several questions regarding tax implications, transfer pricing, and compliance with regulations.

Key Considerations: 1. *Transfer Pricing*: The arrangement between the two entities may be subject to transfer pricing regulations, which require transactions between related parties to be conducted at arm's length.

2. *Interest Subvention Scheme*: The interest subvention scheme is a government initiative to support MSMEs. To avail of this benefit, the company must comply with the scheme's conditions.

3. *MSME Benefits*: To qualify as an MSME, the company must meet specific criteria, such as investment in plant and machinery or equipment.

4. *Export Packing Credit*: The LLP's export packing credit benefit may be subject to compliance with export regulations and documentation requirements.

5. *Advance Payment*: The advance payment from the LLP to the public limited company may be subject to tax implications, such as withholding tax or GST. Lawfulness of the Arrangement:

The arrangement appears to be lawful, but it's essential to ensure compliance with the following:

1. *Transfer Pricing Regulations*: The company must maintain documentation to demonstrate that transactions between the two entities are conducted at arm's length.

2. *MSME Registration*: The company must register as an MSME and comply with the scheme's conditions to avail of the benefits.

3. *Export Regulations*: The LLP must comply with export regulations, including documentation and reporting requirements.

4. *Tax Compliance*: Both entities must comply with tax regulations, including withholding tax, GST, and income tax. Recommendation:

To ensure the arrangement's lawfulness, it's recommended that the company: 1. *Conduct a Transfer Pricing Study*: To demonstrate that transactions between the two entities are conducted at arm's length.

2. *Comply with MSME Regulations*: Register as an MSME and comply with the scheme's conditions.

3. *Ensure Export Compliance*: Comply with export regulations, including documentation and reporting requirements.

4. *Maintain Tax Compliance*: Comply with tax regulations, including withholding tax, GST, and income tax.

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