Deemed Supply Under GST in India

Deemed Supply under GST in India

Imagine you are a Accountant and provides service related to Income Tax and one of your friend who is a Chartered Accountant who provides service related to Goods and Service Tax. Suppose you asked your friend to file your GST Returns but he didn’t take Consideration for it. So you decided that you will deal with his Income tax related issues and won’t charge him for the same.

The above case of exchange of services will be charged under GST as Deemed Supply. Deemed Supply means event or transaction where no or inadequate consideration is received for the supply of goods or services. Such type of exchange of service is also termed as Barter System.

Under the Goods and Service Tax Act in India, there are many more such services and goods which are covered under Schedule I of the Act, which states that- “There are certain activities that are construed as supply even if there is no consideration involved and is termed as Deemed Supply “

Following activities are considered as Deemed Supply:–

1. Barter System: Where goods sold or services provided are settled by other goods or services from another person.
   
   
2. Permanent transfer or disposal of business assets: If Input Tax Credit has already been used for such business assets and is either disposed of or transferred for personal purposes with or without consideration, it shall be considered to be ‘Deemed Supply’.
   
   
3. Supply of goods or services between related persons or distinct persons as defined in section 25:  Where the supply is made in the ordinary course of business or for business purposes, it shall be treated as deemed supply.
   
   
4. Principal supply of goods to his agent: The agent undertakes supply of such goods without consideration on behalf of the principal shall also be considered to be deemed supply.
   
   
5. Agent supplying goods to its Principal: Agent undertakes to receive such goods on behalf of the Principal without consideration, it shall be treated as deemed supply.
   
   
6. Taxable person importing service either from a related person or from any of his establishments outside India, for business purposes or in the ordinary course of business.

Some Examples of Deemed Supply under GST

Schedule I of CGST ACT, 2017 covers transactions which can be treated as deemed supply under GST and GST is required to be paid .

Examples are as follow :-

• Transfer of machinery from Agra Branch to Bengaluru Branch without considerationfor indefinite usage in production activity is a supply although there is no consideration involved.
• An Architect located in New Jersey, USA may provide architect services to say, his brother who is a Builder in India and is a taxable person.
• Foreign branch supplying manpower to Head Office located at Hyderabad.
  
  
• Cloud servers and data storage facilities are commonly sharedby the group of entities. Each region is allocated its share of cost. In such instances, it is possible that due to difference in financial year closure in various other branches, the relevant cost of the Indian entity may not be recorded. The Auditor needs to ensure that by year end, these costs are also reckoned – GST is paid and the relevant input tax credit is claimed.