Cross Charge Under GST: Meaning, Applicability & Example

Cross charge under Goods and Services Tax (GST) applies when one GST-registered branch or office provides services to another branch registered under a different GSTIN of the same organisation. Since GST law treats separately registered establishments of the same legal entity as distinct persons, certain internal transactions may be taxable even when no payment is involved.

This makes cross-charge an important compliance requirement for businesses operating across multiple states or registrations. Properly identifying and reporting such transactions helps ensure accurate tax reporting, appropriate allocation of input tax credit (ITC) and compliance with GST regulations.

What is a cross-charge under GST?

A cross charge under GST is the mechanism used to account for supplies made between different GST registrations of the same legal entity. It applies when one GST-registered branch or office provides services to another branch or office registered under a different GSTIN.

Common services that may require a cross charge include:

• Accounting and finance management
• Human resource administration
• Legal and compliance support
• Information technology management
• Procurement support
• Marketing and brand management

For example, if a head office in Maharashtra provides accounting support to a branch in Karnataka, it may be required to issue a tax invoice and discharge GST through a cross charge.

The legal basis for cross charge arises from:

• Section 25(4) of the CGST Act
• Section 25(5) of the CGST Act
• Schedule I of the CGST Act

Schedule I treats supplies between distinct persons as taxable supplies even when made without consideration.

When does cross-charge apply?

Cross-charge generally applies when one GST-registered unit provides services, resources or support to another GST-registered unit of the same business that is registered under a different GSTIN.

Some common situations include:

• Human resource services provided by the head office
• Accounting and finance support
• Legal and compliance management
• Centralised procurement functions
• IT support and software management
• Marketing and brand management activities

The key consideration is whether one GST registration is supplying a service that benefits another GST registration. Businesses should evaluate the actual flow of services rather than assume that every internal expense requires cross-charging. Incorrect treatment can lead to compliance issues and disputes during GST audits.

Who are distinct persons under GST?

Under GST, separate registrations obtained by the same legal entity in different states or union territories are treated as distinct persons. As a result, transactions between them are not treated as internal movements within a single business and may be considered supplies under GST.

The table below explains this concept:

This treatment ensures that tax is attributed to the state where goods or services are consumed, supporting the destination-based nature of GST.

What is the difference between cross charge and input service distributor (ISD)?

Cross charge and the ISD mechanism are often confused because both involve sharing costs or credit across multiple GST registrations, but they serve different purposes and apply to different types of transactions.

The ISD mechanism is used to distribute the input tax credit on common input services procured from third-party vendors and received at a central location on behalf of multiple registrations. Cross charge, by contrast, applies to internally generated services supplied between distinct persons, such as support a head office provides using its own resources.

The two are complementary rather than alternatives. With effect from 1 April 2025, ISD registration and distribution became mandatory for the input tax credit on common input services received from third parties, so that credit can no longer be routed through cross-charge. Cross-charge continues to apply to internally generated services, and a business operating across multiple registrations will often need both.

How is cross-charge valued?

Cross-charge is valued in accordance with Rule 28 of the CGST Rules, 2017, which prescribes the valuation method for supplies between distinct persons.

The valuation hierarchy generally includes:

• Open market value
• Value of like kind and quality
• Cost-based valuation, where applicable
• Reasonable means consistent with the valuation rules

A particularly important relief is available under the second proviso to Rule 28. Where the recipient branch is eligible for a full input tax credit (ITC), the value declared on the invoice is deemed to be the open-market value. This provision significantly reduces valuation disputes in full-ITC scenarios.

Businesses should maintain proper supporting documentation, including:

• Employee cost allocation workings
• Internal service agreements
• Cost allocation reports
• Inter-branch tax invoices
• Accounting records
• Management allocation documents

Example of cross-charge under GST

Consider a company with a head office in Delhi and a branch office in Rajasthan.

The head office provides payroll, accounting, legal compliance and IT support to the Rajasthan branch and incurs employee and administrative costs while doing so.

Since both locations have separate GST registrations, these services may qualify as a supply between distinct persons under GST. The head office may issue a tax invoice to the Rajasthan branch and discharge the applicable GST through a cross charge.

Subject to eligibility conditions, the Rajasthan branch can claim ITC on the GST charged.

Conclusion

Cross-charge under GST applies to supplies between distinct persons and requires businesses to identify inter-branch services correctly, determine whether cross-charge or ISD treatment applies and maintain adequate supporting documentation.

Accurate treatment helps minimise compliance risks, support input tax credit claims and withstand GST audits. TallyPrime helps businesses manage inter-branch transactions, maintain organised records and generate GST-ready reports, making compliance easier across multiple GST registrations.