What Is a Related Person?
A related person, under GST, is someone so closely tied to your business, through family, ownership, control, employment or an exclusive sales arrangement, that the price you charge them can be tested against market value.
The list sits in the Explanation to section 15 of the CGST Act. It matters because section 15(1) accepts the price actually charged as the taxable value only where the supplier and buyer “are not related” and the price is the sole consideration. Between related persons, a separate valuation rule takes over.
Who Counts as Related
The Act deems two persons related if any one of these is true:
- They are officers or directors of one another’s businesses.
- They are legally recognised partners in business.
- They are employer and employee.
- Any person directly or indirectly owns, controls or holds 25% or more of the voting stock or shares of both.
- One directly or indirectly controls the other.
- Both are directly or indirectly controlled by a third person.
- Together they directly or indirectly control a third person.
- They are members of the same family, which under section 2(49) means a spouse and children, plus parents, grandparents, brothers and sisters only if wholly or mainly dependent.
A sole agent, sole distributor or sole concessionaire of another business is also deemed related, however the arrangement is described. And “person” includes companies, so two firms can be related with no individual involved.
How Sales to a Related Person Are Valued
Rule 28 of the CGST Rules sets the order: open market value first, then the value of goods or services of like kind and quality, and failing both, the methods in rules 30 and 31.
Two provisos make life simpler:
- Goods bought for resale as they are. The supplier may instead use 90% of the price the buyer charges its own unrelated customers.
- A buyer entitled to full credit. Where the related buyer can claim full input tax credit, the invoice value is deemed to be the open market value.
The proviso turns on the buyer being eligible for full credit, not just registered, so a restaurant paying GST without credit, or a business with exempt sales, can fall short of it despite holding a GSTIN.
Related Person Example
A dry fruit wholesaler in Jalgaon sends 200 kg of cashews to a retail shop run by the owner’s spouse in October 2026, billed at Rs.900 a kg for the Diwali rush. The shop sells the same cashews to its own customers at Rs.1,200 a kg.
| Shop | Value for GST | Why |
|---|---|---|
| Full credit | Rs.1,80,000 | Invoice value deemed open market value |
| Composition | Rs.2,16,000 | Wholesaler opts for 90% of Rs.1,200 a kg |
Note: this is an invented example for illustration only. The businesses and prices are not real.
The difference comes from the buyer’s position, not the seller’s. A shop under the GST composition scheme cannot claim input tax credit, so the full-credit proviso does not apply. The wholesaler then uses open market value or opts for the 90% route, and GST is charged on that figure rather than the Rs.1,80,000 on the invoice.
Where Family Businesses Slip
Most trouble comes from misjudging who counts:
- Misreading the family test. A spouse’s or child’s business is related through family, but an independent brother’s or sister’s is not, unless ownership or control links the two.
- Overlooking control. Two companies owned by the same promoter are related through common control, even if they trade at arm’s length.
- Treating a sole distributor as an outsider. The Act deems that arrangement related on its own.
But none of this stops you from selling to a relative. It only changes how the price on that sale is tested, so keep a note on file of the value you used.
Keep a Record of Related-Party Pricing
List every buyer in the eight relationships, plus any sole agent or distributor, mark whether each can claim full credit, and note which valuation route you used in your GST audit preparation checklist. Review the list each April, because a buyer switching into or out of the composition scheme changes the answer overnight.
Frequently Asked Questions
They are treated as distinct persons rather than related persons, because they are one business registered in two states. Rule 28 still governs the value of supplies between them.
No. The invoice looks the same. What changes is the value you put on it, which must follow rule 28, though for a buyer with full credit that is simply the invoice value.
Yes. Employer and employee is one of the eight relationships in the Act. Supplies to staff can therefore fall under related-person valuation, so check how festive gifts and staff purchases are treated with your CA.
They apply to the sale, so the related seller does the valuing. As the buyer, you simply receive an invoice valued under rule 28.
