This comes after the tax department started raising queries on how companies have dealt with this issue. ET had first written on November 14 that some of the top companies headquartered in Pune, Mumbai and New Delhi have started receiving queries from the tax department on cross-charging of CEO and CFO salaries.
“The intention of the GST law was never to tax salary and any other interpretation should be avoided as this would lead to prolonged litigation. Salary cannot be under the GST net and there is an urgent need for a clarification around this,” said Rohit Jain, partner, ELP, a law firm.
The tax department has started questioning top companies and banks if they were passing on some of the common costs like salaries of chief executives to their branch offices.
The department wants companies to proportionately distribute common costs from head office to branch offices and treat this as a supply. Once this is treated as a supply, 10% of it has to be added to the cost and 18% GST could be levied on the total amount.
Industry trackers say that ideally this would be a revenue neutral transaction but still impact the cash flows of the company.