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The Finance Ministry on Friday made it clear that Goods & Services Tax (GST) will not be levied on salary. This clarification has come in the wake of reports that GST has been demanded on salaries paid to CEOs (Chief Executive Officer) or employees of a company.
“…media report in this regard alleging that tax authorities want to impose GST on salaries paid to employees is factually incorrect and misrepresents the tax authorities,” the Central Board of Indirect Taxes and Custom (CBIC) said in a statement.
The indirect tax policy body under the Finance Ministry emphasised the GST law position, which clearly states under Section 7(2) read with Schedule III of the Central Goods and Services Act, 2017 (CGST Act) that salaried services by an employee to the employer shall be treated neither as a supply of goods nor as a supply of services. So, salaries as such cannot be subject to GST. It categorically denied that notice has been issued to any companies demanding GST on salaries whatsoever.
It further said it has been made amply clear vide its press release dated July 10, 2017, that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods nor supply of services).
It said the GST charged on the prices/ charges by any supplier of goods or services from his consumers does comprise all costs, including the cost of raw material, capital goods, input services and employee costs. But this does not mean that salaries paid to the employees by the employer are being taxed under GST.
According to CBIC, it must also be made clear that the offices of an organisation in different States are regarded as distinct persons under the GST Act. Hence, what is taxable under GST is supply of goods and services by the head office to its branch office/s and vice versa. “Any tax charged on such supplies is available to the recipient as input tax credit. This is not any additional cost to the organisation,” the board said, while adding that it is a worldwide practice under GST laws.
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