New Delhi: Salary for services such as accounting, IT, and human resource provided by the head office of a company to its branch offices in other states will attract 18% GST. According to an order passed by the Karnataka Bench of the Authority for Advance Rulings (AAR), activities between two offices are treated as supplies under the GST law. It said the valuation of supply would include all costs, including the employee cost, provided by one distinct entity to other distinct entities.

Experts said the ruling meant that companies that had offices in multiple states would have to raise Goods and Services tax (GST) invoices for functions performed by employees in their head office that were meant to help branches in other states. The GST charged on such supplies can be claimed as input tax credit, but exempt companies will not be able to claim credit. Also this will increase the compliance burden because companies will have to raise invoices for all such inter-state services.

AMRG & Associates Partner Rajat Mohan said the GST charged would be available as tax credit, except in sectors exempt from GST like education, hospitals, alcohol and petroleum. “This cross-charge on account of supply of services is expected to be taxed at rate of 18 per cent, sending shockwaves across conglomerates in India," Mohan said.

Abhishek Jain, Tax Partner, EY said, “This ruling may need to charge GST on notional head-office employee costs as well, with credit of such GST not being available to the recipient branch or company."

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