Is it justified to levy GST on the cross charge of CXOs salaries?

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Is it justified to levy GST on the cross charge of CXOs salaries?

Recently some top companies received notices demanding explanation on levy of GST for the cross charges. The department is likely to levy GST on the salaries of CXOs cross charged to the branch offices or subsidiaries.

Many top companies currently cross charge the salaries of CXOs on a proportionate basis to their branches or subsidiary offices as a common CXO is working for the, based on say time spent by the officer or such other relevant methods. The tax department is asking to levy of 18% of GST on such salaries cross charged.

Is it justified to levy this GST?

Let’s assume A ltd has a subsidiary B ltd and a common COO employed on the rolls of A ltd. Since, the important operating decisions are taken by COO, A ltd. apportions the salary of COO on an appropriate basis to B Ltd.

In this case, the department can take the view that, –

Since the COO is on the rolls of A ltd, he is an exclusive employee of A ltd. The cross charges done to B Ltd is “supply” of services for GST related purposes. Hence, the GST should be levied on the apportioned cost of COO’s salary too.

Taxpayers, on the other hand, feel that the view adopted by the tax department in considering the CXO as the employee of the head off only is incorrect since the role of the CXO also includes the responsibilities related to the branches/subsidiaries, etc.

Cost Implication

Some organizations feel that this adjustment is cost-neutral if there is time to take credit of the GST levied on the cross charge. However the confusion will certainly lead to delay and in case there is a lapse in the time to claim the credit of the GST, then it will be an additional cost to the companies.

Similarly, some sectors like Transport, Pharma, etc who cannot claim GST credit, will have this as an additional cost.

Conclusion

There is a lot of confusion related to cross charges and levy of GST. The levy of GST on CXO salaries does not have any legal validity, and is an unnecessary burden on the companies. Though similar confusions and claims were existing from the service tax era, it is high time for the department to make things simpler. We expect some clarification in this regard.

 

Update:  In the view of the confusion caused due to levy of GST on salaries, the official clarification has been issued by the department that NO GST will be charged on the salary component.

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About CA Janhavi Phadnis 78 Articles
Chartered Accountant and financial consultant. She has worked with corporates for 14 years with expertise in Forex-Treasury, Accounting, and Corporate Tax. She can be contacted at info.financepost@gmail.com

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