According to an order passed by the Karnataka bench of the Authority for Advance Ruling (AAR), the activities between two offices is to be treated as supplies under the GST (goods and service tax) law. This means that the salary for services like accounting, IT, human resource, provided by the head office of a company to its branch offices in other states will attract 18 percent GST.
The order said that the valuation of supply will include all costs, including the employee cost provided by one distinct entity to other distinct entities. "The activities performed by the employees at the corporate office in the course of or in relation to employment such as accounting, other administrative and IT system maintenance for the units located in the other states as well i.e. distinct persons as per Section 25(4) of the Central Goods and Services Tax Act, 2017 (CGST Act) shall be treated as supply as per Entry 2 of Schedule I of the CGST Act," the AAR said.
According to a PTI report, experts suggest that the ruling will mean that companies, which have offices in multiple states, will have to raise GST invoice for those functions performed by the employees in the head office that have helped branches in other states.
Although the GST charged on such supplies can be claimed as input tax credit (ITC), companies which are exempt from GST (like education, hospitals, alcohol and petroleum) will not be able to claim credit. Also, this will increase the compliance burden for companies as they have to raise invoices for all such inter-state services made.
Inputs from PTI