Government set to clarify no GST on Execs’ salaries

The government is planning to clarify GST should not be applicable on salaries of chief executives who sit sitting in head offices. The move comes at the backdrop as after the tax department started raising queries on how companies have dealt with this issue.

According to sources, Central Board of Excise and Customs (CBEC) is set to clarify that common function like Human Resources should be out of the GST gamut.

“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 as began probing top companies and banks if they were passing on some of the common costs like salaries of chief executives to their branch offices, as it 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.