Valuation of Supply between Related Persons under GST (2026): Rule 28 and the Full-ITC Proviso
CA Meet Dhrangadhariya 
May 29, 2026
CA Meet Dhrangadhariya May 29, 2026
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Last updated: 05 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
Large groups with multiple legal entities under common control - a holding company and its subsidiaries, or sister concerns under the same promoter family - routinely supply goods and services to each other. GST does not let the price on that internal invoice be taken at face value once the parties are related.
GST law defines related persons broadly - not limited to family relationships. Two persons are related where, among other tests, they are officers or directors of one another’s business, legally recognised partners, employer and employee, one controls 25% or more of the other’s voting stock, one directly or indirectly controls the other, both are controlled by a third person, or they are members of the same family. Two separately-incorporated group companies under common promoter control, for example, qualify as related persons even though they are distinct legal entities.
Where goods or services (or both) are supplied between related persons, other than through an agent, the value of the supply is determined, in this order:
Rule 28 carries a proviso that matters enormously in practice: where the recipient of the supply is eligible to claim full input tax credit, the value declared in the invoice is deemed to be the open market value of the goods or services - regardless of what the true open market value actually is.
Suppose Company A supplies goods worth Rs 1,50,000 (the actual open market value) to its related entity, Company B, but invoices it at Rs 1,00,000. If Company B is eligible for full input tax credit, and claims the full GST charged on the invoice - say Rs 18,000 at 18% of Rs 1,00,000 - then the invoice value of Rs 1,00,000 is deemed to be the open market value for GST purposes. Company B carries forward only Rs 18,000 of credit, not the higher amount that would have applied had the goods actually been valued at Rs 1,50,000.
The detailed open-market-value and like-kind-and-quality methods exist to stop related parties under-pricing a supply purely to reduce tax. But where the recipient can claim full credit anyway, under-pricing the supply causes no loss of GST revenue - the recipient simply gets a correspondingly smaller credit, matching the smaller tax actually paid. The law therefore does not require the fuller valuation exercise in that situation, and simply accepts the invoice value.
Deciding whether the full-ITC proviso genuinely applies, and documenting related-party pricing correctly where it does not, is a recurring question for group structures and intra-company transactions - please reach out to our team and we will be happy to assist.
| Term | What it means |
|---|---|
| Related person | Parties connected by specific relationships GST law defines - common directors, business partners, employer-employee, common control, family, and similar - whose transactions need a different valuation approach than an ordinary sale. |
| Open market value | The full value a supply would fetch between unrelated parties dealing at arm’s length. |
| Like kind and quality | Goods or services that are the same as, or closely resemble, the ones being valued, in characteristics, quality and reputation. |
| Full input tax credit | Where the recipient of a supply can claim the entire GST charged on it as credit, with no restriction or blockage. |
| Cost method | A fallback valuation approach based broadly on 110% of the cost of producing, manufacturing or acquiring the goods or services. |
Because section 15(1) of the CGST Act allows transaction value (the price actually paid) only where the parties are not related persons and price is the sole consideration. Once the parties are related, the stated price cannot be assumed correct, and Rule 28 of the CGST Rules fixes the value instead.
First, the open market value of the supply. If that cannot be determined, the value of goods or services of like kind and quality. If neither can be determined, the cost method or the residual method under the general CGST Valuation Rules.
Where the recipient of the supply is eligible to claim full input tax credit, the value declared in the invoice is deemed to be the open market value, regardless of the actual open market value - the detailed valuation methods do not need to be applied in that case.
Because when the recipient can claim full credit, under-valuing the supply does not cause any revenue loss to the government - the recipient only gets credit for the GST actually charged on the invoice, not for the higher amount of tax that would have applied at the true open market value.
No. It applies to any supply between “related persons” as defined in the Explanation to section 15 - officers or directors of each other’s businesses, legally recognised business partners, employer and employee, parties under common control, family members, and similar relationships - not only to intra-group corporate transactions.
This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.
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