Section 15 – The silent revolution in GST.

Siva Subramaniam

Quietly in the midst of huge volumes of the draft act on the all-important Goods & Services Tax, Section 15(1) elaborates the aspects of Valuations & Related parties. The section goes on to bring out the view that “the value of a supply of goods and/or services shall be the transaction value, that is the price actually paid or payable for the said supply of goods or services where the supplier and the recipient of the supply are not related and the price is the sole consideration of the supply.”

The section brings out other important aspects like:

  1. Price shall be the sole consideration of the sale. No other benefit either in cash or in kind shall accrue to the supplier of goods or services
  2. ‘Related person’ as a term is not defined in VAT and the current version of Service Tax. In Central excise the definition of Related party is quite limited, therefore opening a whole new world of related party management
  3. Transaction value should establish that the value of the transaction is not influenced by the relationship between the supplier and the customer

This opens up a whole new Pandora’s box for the banking industry. When we deeply analyse and contextualize that to banking scenario, we can clearly identify the need to link every service charge transaction to validate whether the customer is a related party, to assess whether there was a benefit that was passed on during the transaction, and finally to calculate GST at the gross value of the transaction. This is easier said than done. Banks would therefore be required to build up capabilities around the following on an immediate basis, to be prepared for when the GST act comes into actual practice:-

  1. Create golden copies of fees &charges across products and services supplied by the bank
  2. Ensure capturing of “Related Party” information at the customer level
  3. Link the customer information to each and every charge transaction
  4. Validate if the transaction is getting any beneficial value due to the relationship
  5. And finally, compute taxes based on the gross value of the service as defined in the golden copy

Besides related party, the section also covers the important aspects of arriving at “Transaction Value”. While it is going to be difficult to assess the value of a transaction in banking or financial services context, one of the most interesting explanations has been on the Value creation that is happening implicitly. An example to quote would be of the implicit value creation in promotion of a movie as part of a TV chat show. In this example, the production houses of neither the movie nor the TV chat show are accounting for the perceived value that shall be generated as part of the promotion.

Organizations therefore must give due weightage in understanding 2 critical aspects of the draft GST Act (Related Party impact & Valuation of Transactions) and automate the life cycle of the transactions.Banks need to invest in solutions that can help them get to the minutest detail of each and every transaction and easily handle different aspects like centralized copies of charges, exemption rules, and related party management through automated processes. While compliance to the new act is of key importance, automating the processes will ensure operational efficiencies and faster time to service the customer. At the end of the day, in the wake of preparing to comply with new regulations, banks definitely cannot lose focus on the aspects of customer convenience and experience which is of utmost importance in today’s fast-moving world.

Xelerate for GST”, by SunTec Business Solutions, is and end-to-end solution that takes care of banks’ business needs around the GST Act. Please click here to further explore on how SunTec can partner with your organization in the journey towards GST compliance.

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Siva Subramaniam

Product Head – Banking & Financial Services