A new Goods and Services Tax (GST) ruling is to come out with a lot of confusion and can cause more litigations.
According to which salary paid to head office employees for the services provided to branch office shall be taxed under GST regime. Employer will have to say that how much of the money paid to employee is attributable to services rendered to branch office and accordingly will have to pay GST on that part of salary.
In this regard, expert’s view is, that this will create confusion and unnecessary litigation. “Salary is not under the purview of the GST law. This AAAR ruling essentially makes salaries taxable under GST, which is contradictory to the provisions of the law,” Jatin Arora, partner, Phoenix Legal, said.
“Due to this, there will be unnecessary confusion, leading to notices from the department and litigation,” Arora added, stating that the government should issue a clarification at the earliest to avoid a flurry of notices from the tax department to firms across the country.
Further, Abhishek Rastogi, partner, Khaitan & Co. elaborated, “As per Schedule I, only supply of goods and services between related parties would be subject to tax, whether with or without consideration. However, cost allocation is different from supply of service, and this would not fall under the purview of supply.” This means that any cost allocation, in this case, salaries of head office staff would not be taxable under GST, he further explained.
However, there was a similar ruling from Karnataka Authority of Advance Ruling 2019. The union government had said that it would provide a clarification in this matter but nothing has come through so far. While this will not bother the employee but the finance team will have a new headache.
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