Related Persons, Distinct Persons and Establishments of Distinct Person
# Related Persons, Distinct Persons & Establishments
These definitions are critical because supplies between such persons can be deemed supply (Schedule-I) even without consideration.
## Related Persons
Two persons are 'related' under GST if any of the following hold:
They are officers or directors of one another's businesses.
They are legally recognised partners.
They are employer and employee.
A third person directly/indirectly owns, controls or holds ≥ 25% of the voting stock/shares of both.
One controls the other (directly or indirectly).
They are both controlled (directly or indirectly) by a third person.
Together, they control a third person.
One is the sole agent, sole distributor or sole concessionaire of the other.
They are members of the same family.
## Members of the Same Family
Spouse and children → Always related.
Parents, grandparents and siblings → Related only if dependent on such person.
## Distinct Person — Section 25
A person who has obtained or is required to obtain more than one registration under the same PAN, whether:
in one State/UT, or
in more than one State/UT.
Each such registration is treated as a distinct person.
## Establishment of Distinct Person
A person who:
Has obtained or is required to obtain registration in a State/UT, AND
Has another establishment (neither registered nor required to register) in another State/UT.
The two establishments are treated as establishments of distinct persons.
## Why It Matters
Supplies between distinct persons or related persons in the course of business are deemed supply under Schedule-I Para (2) — taxable even if free.
Import of services from a related person/other establishment outside India for business is deemed supply under Schedule-I Para (4).
Worked example
### Example 1
Q. ABC Ltd. is registered in Mumbai (MH). Classify the relationship of Mumbai with each branch:
(i) Pune branch — separately registered (Maharashtra)
(ii) Jaipur branch — separately registered (Rajasthan)
(iii) Chandigarh branch — selling clothes, not registered
(iv) Ludhiana branch — selling petrol, neither registered nor required to register
(v) Thane — declared as additional place of business, not separately registered.
A.
(i) >1 registration in same State → Distinct person.
(ii) >1 registration in different States → Distinct person.
(iii) Required to obtain registration (clothes, taxable) → Distinct person.
(iv) Petrol is non-GST; Ludhiana neither registered nor required → Establishment of distinct person.
(v) Same registration, only additional place → Neither distinct person nor establishment of distinct person.
### Example 2
Q. Mr. X provides consulting services to his married daughter living independently. Related person?
A. Children are always related (no dependency test). Therefore, related person. (Supply requires business nexus separately.)
### Example 3
Q. Mr. Y provides services to his unemployed brother who lives with him. Related person?
A. Siblings are related only if dependent. Since the brother is dependent, they qualify as related persons.
⚠️ Common exam mistakes
Treating two branches in the same State with a single registration as distinct persons — distinct person status requires a separate registration.
Applying the 'dependency' test to spouse/children — it applies only to parents, grandparents and siblings.
Forgetting that an unregistered establishment in another State (where registration is not required) still qualifies as 'establishment of distinct person' if the main establishment is registered.
Bare-Act text Explanation to Section 15; Section 25(4) & 25(5) · CGST Act, 2017 · click to expand
Explanation to Section 15, CGST Act: Persons shall be deemed to be 'related persons' if—(i) such persons are officers or directors of one another's businesses; (ii) such persons are legally recognised partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family.
Section 25(4), CGST Act: A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.
Section 25(5), CGST Act: Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.