GST on Management Fees from a Foreign Parent
Paying management fees to your foreign parent? Understand reverse charge GST, time of supply, input tax credit and GSTR-3B reporting for Indian subsidiaries.
By Nagavarapu Sudheer, M.Com., F.C.S., L.L.B., Partner, A2 Consultants
Most foreign-owned Indian companies pay their overseas parent or group entities for management support, IT services, shared services or brand use. Every such payment carries a GST question that is easy to miss because no Indian invoice is involved. This guide explains how the tax works and what to put in place.
Why GST applies to a foreign parent's invoice
When an Indian company receives services from a supplier outside India, the transaction is an import of services. Where the place of supply is India and the recipient is registered, the Indian company must pay the tax itself under the reverse charge mechanism (RCM), as integrated GST (IGST). The foreign parent does not charge or collect GST, and it does not need an Indian registration for this.
What rate applies
The rate follows the nature of the service. Most management, consulting, IT and support services attract 18%. Some services have different rates or exemptions, so classify each service line rather than treating the whole invoice alike. Please confirm the current rate on the GST portal or with your adviser before filing.
Related-party imports can be taxable even without a fee
Services between related persons, including a parent and subsidiary, can be treated as a supply even where no consideration is paid. Cost sharing, free support or secondments should be reviewed with this in mind. Valuation usually follows the open market value or the invoice value between associated enterprises.
Time of supply
For services from an associated enterprise, the time of supply is generally the earlier of the date the expense is booked in your accounts or the date of payment. Accruing a year-end management fee therefore can trigger the liability in that month, not when cash moves. Finance teams should map this to the month-end close.
Input tax credit and refunds
- The IGST paid under RCM is generally available as input tax credit if the service is used for taxable business supplies.
- Credit is blocked for certain categories, such as services used for exempt supplies or personal use.
- Global capability centres and other exporters of services can usually claim a refund of unutilised credit on zero-rated exports, subject to conditions.
- Credit is claimed in the month of payment of the tax, so cash flow is affected in the short term.
Reporting
RCM on import of services is reported in GSTR-3B, Table 3.1(d), and the credit in Table 4. Keep a reconciliation between the ledger, the GST return and the Form 15CA/15CB paperwork used for the remittance.
Practical checklist
- Maintain a signed intercompany agreement describing each service.
- Classify each service and confirm its rate and place of supply.
- Book the RCM liability at the time of supply, not at payment.
- Reconcile with the transfer pricing file so that values are consistent.
- Align with FEMA and withholding tax: the same fee must also clear the remittance and TDS review.
- Review whether credit or a refund is available and claim it on time.
How A2 Consultants can help
We review intercompany arrangements, set up the RCM process and reconcile it with transfer pricing, FEMA and withholding. Contact us for a short diagnostic of your current position.
This article is general information, not legal or tax advice. Rates, notifications and procedures change; verify against the latest GST notifications before acting.