Experts said that under GST, salaries paid to executives by the head office is considered to have been paid by all the branch offices of the organisation situated in different states in lieu of services.
The Central Board of Indirect Taxes & Customs (CBIC) on Friday clarified that salaries are not subject to GST, and said that department has not demanded any tax on salaries paid to chief executives or employees. It was responding to media reports.
“CBIC emphasised the GST law position which clearly states under Section 7(2) read with Schedule III of the Central Goods and Services Act, 2017 (CGST Act) that the salaried services by an employee to the employer shall be treated neither as a supply of goods nor as a supply of services,” a statement said. It added that salaries as such cannot be subject to GST, and no notice has been issued to any companies demanding GST on salaries whatsoever.
Experts said that under GST, salaries paid to executives by the head office is considered to have been paid by all the branch offices of the organisation situated in different states in lieu of services. “While the head office pays the salaries, it recovers the amount from other branches which is liable for GST. However, the branch office, located in a different state from head office, is entitled to claim input tax credit on the GST paid,” said Rajat Mohan, senior partner, AMRG & Associates.
Further, CBIC said that offices of an organisation in different states are regarded as distinct persons under Section 25 of CGST Act. “Hence, what is taxable under GST is supply of goods and services by the head office to its branch office/s and vice versa. Any tax charged on such supplies is available to the recipient as input tax credit. This is not any additional cost to the organisation. Also, it is a worldwide practice under GST laws,” it added.