🏢 How to Structure Inter-State Franchise Operations With Separate GSTINs

As franchising expands across state borders in India, compliance under the Goods and Services Tax (GST) regime becomes crucial. One key aspect that multi-state franchises must address is obtaining separate GSTINs (GST Identification Numbers) for each state of operation. This ensures tax efficiency, legal clarity, and smooth business functioning.

In this guide, we’ll explain how to structure inter-state franchise operations effectively with separate GST registrations, along with legal requirements and strategic tips.

🧾 What is a GSTIN and Why Is It Important?

A GSTIN (Goods and Services Tax Identification Number) is a unique 15-digit code issued to every registered taxpayer under the GST law. It is state-specific and PAN-based.

✅ Legal Requirement: Any person or entity supplying goods or services from more than one state must obtain a separate GSTIN for each such state.

🌐 Franchise Models & GST Impact

Franchise businesses generally follow two structures:

1. 🧑‍💼 Franchisee Model

Here, each franchisee is an independent entity operating under the brand's name and guidelines.

📌 GST Implication: Each franchisee must get GST registration in their own state.

2. 🏭 Company-Owned Branch Model

The franchisor opens branches in multiple states but maintains centralized ownership.

📌 GST Implication: The company must obtain separate GSTINs in each state from where it makes taxable supplies.

📍 When Are Separate GSTINs Mandatory?

According to Section 22 of the CGST Act, 2017:

• A person must register under GST in every state from where taxable supply is made.
• Even if the company is operating under a central head office, supply from another state mandates a new GSTIN.

🔁 Inter-Branch Transactions & GST

When a franchisor has branches (with separate GSTINs) in different states, transactions between them are treated as supply under GST—even if there’s no monetary consideration.

🧾 Example: If the Mumbai branch sends stock to the Delhi branch, it must raise a tax invoice and pay IGST on the transfer.

🛠️ Step-by-Step: Structuring Franchise Operations with GSTINs

Step 1: 📝 Identify States of Operation

List all states from which your franchise will operate and make taxable supplies.

Step 2: 🏛️ Register in Each State

Apply for separate GST registrations using the same PAN but different business addresses in each state.

📂 Documents Needed:

• PAN of entity
• Address proof for each state
• Proof of business constitution
• Authorized signatory ID

Step 3: 🔗 Map Branch Transfers and ITC

Ensure proper invoicing of inter-state transfers and maintain Input Tax Credit (ITC) mapping for compliance.

Step 4: 📊 Maintain State-Wise Accounts

Keep books of accounts state-wise and GSTIN-wise for easier filing and audits.

Step 5: 🧮 File Returns Separately

Each GSTIN requires separate:

• GSTR-1
• GSTR-3B
• Annual return (GSTR-9)

📌 Key Compliance Points for Franchisors

🤝 Franchise Agreement & GST Clauses

While drafting franchise agreements, always include:

• 📄 GST Payment Responsibility
  Who will pay GST on royalty—franchisor or franchisee?
• 📄 GST Compliance Clause
  Mandating registration, return filing, and record-keeping by franchisee.
• 📄 Indemnification Clause
  For GST penalties arising out of franchisee’s non-compliance.

📉 Common Mistakes to Avoid

🚫 Using a single GSTIN across multiple states
🚫 Ignoring tax on inter-state branch transfers
🚫 Missing deadlines for GSTR filings
🚫 Improper classification of services under SAC codes

✅ Strategic Benefits of Using Separate GSTINs

🏁 Conclusion

Franchisors expanding operations across India must align their GST compliance strategy accordingly. Obtaining and managing separate GSTINs for each state is not just a legal obligation but also a best practice for operational transparency, efficient taxation, and seamless franchise growth.

💬 Pro Tip: Invest in a GST compliance software or professional service to handle multi-state filings, inter-branch invoicing, and ITC reconciliations effectively.

Created & Posted by Nishu Sharma

Sales and Marketing Executive at TAXAJ

TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you a One Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ

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