• Notification Date: 18-01-2022
• Notification No: N/A

GST on Salaries – The New Ruling is resulting into Massive Confusion

The Goods and Service (GST) regime has passed a new order for the companies to have separate registrations for each state. The common expenses incurred by the head office, such as marketing, advertising, legal services, and travel expenses are to be divided to the branch offices based on the respective turnovers.

A tax ruling by the GST regime states that the same rule will be applicable for the head office employees. It will be applied to the salary paid to head office employees for the services that are provided to the branch offices. If you receive a salary of Rs.10,000 while being an employee of the Delhi head office of a company, then your company has to say the amount that is offered to the employees of the Kolkata branch office. GST amount will be applicable on that part of the salary.

The employees are not facing any hazards in this case. But the finance team will have to face major issues.

According to the experts, this new ruling will create unnecessary litigation and confusion. This new rule is contradictory to the law. A similar ruling was passed by the Karnataka Authority of Advance Ruling in 2019. The union government had asked to provide a clarification on this matter but it has not arrived yet.

Abhishek Rastogi, a partner of the Khaitan & Co., has told Business Insider that tax will only be applicable on the supply of goods and services between related parties. Cost allocation will not be considered as supply of service. This is not a concern of supply. As per this rule, the cost allocation of the salaries of the head office employees cannot be charged with the goods and service tax.

Cummins India requested the Maharashtra AAAR to clarify whether to charge GST on the head office employees’ salary allocation which is paid to the branch employees. The new ruling came as a response to this request.

Arora commented on this, “Due to this, there will be unnecessary confusion, leading to notices from the department and litigation”. The government should issue a clarification on this matter soon. Otherwise, the tax department will send notices to firms all over the country.