Head Office Services To Other State Branches To Attract 18% GST

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 an 18 percent goods and services tax.

The activities between two offices are treated as supplies under the GST law, according to an order passed by the Karnataka bench of the Authority for Advance Ruling.

It said the valuation of supply would include all costs, including the employee cost provided by one distinct entity to the other separate 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 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.

Experts said the ruling would mean that companies, which have offices in multiple states, will have to raise GST invoice for functions performed by 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, companies which are exempt from the GST will not be able to claim credit.

Also, this will increase the compliance burden for companies as they have to raise an invoice for all such inter-state services made.

AMRG & Associates Partner Rajat Mohan said this GST charged would be available as a tax credit, except for sectors which are exempt from the 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 percent, sending shockwaves across conglomerates in India,” Mohan said.