Correlation between Indirect Taxes and Contractual Clauses

This article examines the intricate relationship between indirect tax laws and contractual clauses in commercial agreements. It emphasises the critical need for tax-conscious drafting of contracts to mitigate risks arising from GST and other indirect tax implications. The author highlights practical scenarios where inadequate tax consideration in contracts can lead to disputes, financial exposure, and compliance challenges. Key topics include tax indemnity clauses, price escalation provisions, GST treatment on supplies, and impact on warranties. The article argues that proactive engagement between legal and finance teams during contract drafting is essential to align commercial objectives with tax compliance. By integrating tax considerations into contracts, businesses can ensure greater certainty, minimize litigation, and achieve smoother operational execution in the GST regime.

1. INTRODUCTION

In the modern global economy, the structuring of commercial contracts goes far beyond a simple agreement to buy and sell goods or services. Contracts today are complex instruments that balance a range of legal, financial, and regulatory risks. One of the most critical yet often underestimated components of this balancing act involves taxes – particularly indirect taxes, which can significantly impact the cost and execution of transactions.