No IGST on Services Between Distinct Persons if Full ITC is Available
If you’re operating multiple GST-registered branches across different states, you may wonder: Is IGST applicable when services are supplied between these units?
Here’s the relief — if the recipient unit can claim full Input Tax Credit (ITC), then IGST is not payable, as clarified by CBIC.
Let’s break it down for you.
Understanding the Concept of ‘Distinct Persons’ Under GST
Under Section 25(4) of the CGST Act, establishments of the same entity in different States or Union territories are treated as distinct persons.
So, when your Maharashtra branch provides a service to your Karnataka branch — it’s considered a supply between distinct persons.
👉 Even without any invoice or payment, such cross-branch service is taxable unless exempted.
CBIC Clarification: No IGST if Full ITC is Available
The Central Board of Indirect Taxes and Customs (CBIC) has clarified that IGST will not be leviable in such inter-branch service transactions if the recipient unit is eligible for full ITC.
📄 Source: Circular No. 199/11/2023-GST dated 17th July 2023
Keyphrase Subheading:
No IGST on services between distinct persons: Legal Conditions
To qualify for this benefit, the following conditions must be met:
- The supplier and recipient are distinct persons (branches in different States with separate GSTINs)
- The recipient unit is eligible for full Input Tax Credit
- The transaction is without consideration or valuation is not determinable
Legal Basis: Rule 28 and Explanation to Section 15 of CGST Act
The legal foundation lies in:
- Section 15 of CGST Act (Valuation)
- Rule 28 of CGST Rules, which provides a “deemed open market value” exception
- Explanation to Rule 28: If full ITC is available to the recipient, then invoice value is deemed to be the open market value
This effectively removes the need to charge IGST when full ITC neutralises the tax liability.
Practical Example
Let’s say:
- A company has its head office (HO) in Delhi and a branch in Tamil Nadu
- HO shares software development or HR services with the branch
- Tamil Nadu branch is fully eligible for ITC
👉 No IGST is payable on such service.
Expert View: Use Bill-to-Self Strategy Smartly
As per GST experts, charging IGST unnecessarily can lead to working capital blockage, especially in year-end closings.
If full ITC is available, businesses should ensure that internal cross-branch service transactions are reviewed for this exemption.
But — if ITC is restricted (e.g., personal use or exempted output), then IGST is applicable.
Quick Summary Table
| Situation | IGST Applicable? | Reason |
|---|---|---|
| Inter-state service between branches | ❌ No | If full ITC available |
| Full ITC not available to recipient | ✅ Yes | Tax liability arises |
| Service with consideration | ✅ Yes | Normal supply provisions apply |
| Intra-state supply | ❌ No IGST | CGST + SGST apply |
Compliance Tip for FY 2024–25
Ensure your internal documentation, service agreements, and books reflect these rules clearly. Also, mention the ITC eligibility if no tax is being charged, for audit safety.
FAQs
Q1: What is a distinct person under GST?
A: Different branches or offices of the same entity in different states, each with separate GSTINs, are treated as distinct persons.
Q2: Is a tax invoice required between branches?
A: Yes, if services are taxable. But if full ITC is available and IGST is not charged, documentation should still support the service transfer.
Q3: Can I voluntarily pay IGST even if ITC is available?
A: Technically, yes. But it may lead to unnecessary cash flow impact.
Final Thoughts
The CBIC’s clarification removes a major headache for businesses with multi-state operations. No IGST on services between distinct persons, if the recipient can claim full ITC, ensures tax neutrality and smoother compliance.
📲 Need help with GST reconciliation, ITC eligibility, or inter-branch documentation?
Connect with Efiletax today for expert assistance.
Summary
CBIC clarifies no IGST on services between distinct persons if full ITC is available. This applies to inter-state service transfers between company branches. Based on Rule 28 and Section 15, this move helps businesses avoid tax blockage and ease GST compliance.