The salaries of employees are not subjected to Goods and Services Tax (GST), the Central Board of Indirect Taxes and Customs (CBIC) had clarified recently, which states that no GST be demanded on salaries paid towards the chief executive officers or employees.
The Finance Ministry recently had made it clear that Goods and Services Tax (GST) shall not be imposed on salary. This explanation had come after reports that GST was demanded on salaries paid towards CEOs (Chief Executive Officer) or employees of a corporation.
The statement made CBIC stated that the media reported relating to this by alleging that tax authorities wanted to levy GST on salaries paid towards employees is factually incorrect as well as misrepresents tax authorities.
The CBIC also stated that Goods and Services Tax (GST) law position plainly specifies under Section 7(2) along with schedule III of the Central Goods and Services Act, 2017 (CGST Act) that salaried services by means of an employee towards an employer shall be treated neither as a supply of goods nor as a supply of services. Therefore salaries relating this shall not be subjected to GST. The CBIC stated that it firmly denied that no notice was issued in the direction of any corporations demanding GST on salaries whatsoever.
Also, it further held it had been made clear through its press release which was dated on 10th July 2017, that the services through an employee to the employer throughout or in relation to his service is outside the scope of GST (neither supply of goods nor supply of services).
However the GST charged on amounts or charges by any supplier of goods or services from customers does contain all costs which include the charges of raw material, capital goods, input services as well as employee costs. Though, this doesn’t mean that salaries paid towards the employees by the employer shall be taxed under GST.
As per the CBIC, it also made clear that offices of an organization in different states are considered as distinct individuals under Section 25 of CGST Act. Henceforth, what is taxable under GST is the supply of goods and services by means of the head office towards its branch office and vice versa. Any tax that was charged on such supplies is available towards the recipient as an input tax credit. The CBIC stated that this is not any additional cost to the organization, as well as it is a worldwide practice under GST laws.
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