Deemed Supply under GST -Goods and Service Tax in India

deemed supply

Deemed Supply under GST : Imagine you are a Chartered Accountant who provides service related to Income Tax and one of your friend who is also 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.

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Under the Goods and Service Tax Act in India, there are many more such services and goods which are covered under Schedule 1 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.

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  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 services either from a related person or from any of his establishments outside India, for business purposes or in the ordinary course of business.

There are some other cases where supply of goods are treated as deemed Supplies. These are as follows-

  1. Goods Sent on Return or Approval Basis after specified time.
  2. Goods Not Returned from Job Worker within specified time.

Who is a related person under GST?

Persons are deemed to be related if they fall within any of the following categories:

  1. Officer or director of one business is the officer or director of another business.
  2. An employer and an employee.
  3. Any person who holds at least 25% of shares in another company either directly or indirectly.
  4. One of them controls the business either directly or indirectly.
  5. They are under common control or management of the business.
  6. The entities have control in another entity.
  7. They are members of the same family.

Persons here include a legal person who may be individuals, HUF, company, company, LLP, cooperative society, individual body, local authority, government, etc. or an artificial legal person. It also includes businesses that are incorporated outside India.

Persons who are associated with one another’s business or is a sole agent or sole distributor shall be deemed to be related.

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The author of above article is Sneha Bhalotia

Disclaimer:The article or blog or post (by whatever name) in this website is based on the writer’s personal views and interpretation of Act. The writer does not accept any liabilities for any loss or damage of any kind arising out of information and for any actions taken in reliance thereon.
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