The Income Tax Department has started questioning companies on how they treat cross charge, which is broadly cost on a company’s common functions such as HR, IT, audit and salaries of chief executives.
The tax department wants the cross charge to be passed on to other branches from the head office of a company and treated as supply of services, which would then be liable to pay GST.
It wants companies to even treat the salary of the chief executive to be a cost for the head office and pay 18% GST on it and has already served queries to companies and banks in cities like Mumbai, Pune and Delhi, said an ET report.
The tax department is enquiring whether the methodology is followed by the companies through preliminary notices. As per experts observing the space, this would lead to additional cost to the company.
GST liability will lead to significant cost where the time period to avail credit has lapsed, added the report. Meanwhile, taxpayers maintain that it requires a separate cross charge invoice.
However, Rahul Jain, a partner with law firm ELP, termed the interpretation by the income tax department not legally viable.
For only GST related purpose, it can not interpret that an employee of an organisation should be considered as an employee of a particular office only, he was quoted as saying by the report.
In recent months, the govt has witnessed a downfall in GST to a 19-month low of Rs 91,916 crore in September. This is the second straight month of decline in the GST collections, as per the finance ministry data.
The corporates are yet to react to this development. The IT department move comes after govt attempts to improve ease of doing business for startups.