Indian branch offices to be taxed for HR support from head office Indian branch offices to be taxed for HR support from head office

Indian branch offices to be taxed for HR support from head office
28 Aug 2018

Salaries for services such as accounting, IT and HR provided by an Indian company head office to its branch offices in other states will now attract an 18% Goods and Services Tax (GST).

According to an order passed by the Karnataka bench of the Authority for Advance Ruling, the activities between two offices should be treated as supplies for the purposes of GST. It said supply valuations must include all costs, including the expense involved in supplying employee services from one distinct entity to other distinct entities. 

In other words, the ruling means that companies with offices in multiple states will have to raise a GST invoice for work carried out by employees in head office if they have helped branches in other states.

Although the GST charged may be claimed as an input tax credit (ITC), companies that are exempt from GST will be unable to claim it. The move will also increase the compliance burden for organisations as they will need to raise invoices for all such inter-state services, FirstPost points out. 

AMRG & Associates partner Rajat Mohan said the amount of GST charged would be made available as a tax credit, except for sectors that are exempt from GST like education, hospitals, alcohol and petroleum.

"This cross-charge on account of supply of services is expected to be taxed at a rate of 18%, sending shockwaves across conglomerates in India," he said.

 Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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Salaries for services such as accounting, IT and HR provided by an Indian company head office to its branch offices in other states will now attract an 18% Goods and Services Tax (GST).

According to an order passed by the Karnataka bench of the Authority for Advance Ruling, the activities between two offices should be treated as supplies for the purposes of GST. It said supply valuations must include all costs, including the expense involved in supplying employee services from one distinct entity to other distinct entities. 

In other words, the ruling means that companies with offices in multiple states will have to raise a GST invoice for work carried out by employees in head office if they have helped branches in other states.

Although the GST charged may be claimed as an input tax credit (ITC), companies that are exempt from GST will be unable to claim it. The move will also increase the compliance burden for organisations as they will need to raise invoices for all such inter-state services, FirstPost points out. 

AMRG & Associates partner Rajat Mohan said the amount of GST charged would be made available as a tax credit, except for sectors that are exempt from GST like education, hospitals, alcohol and petroleum.

"This cross-charge on account of supply of services is expected to be taxed at a rate of 18%, sending shockwaves across conglomerates in India," he said.

 Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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