Is GST on Employee Services a New Challenge for Employers? Let's Discuss the Impact!

Friends,

Recently, the Karnataka Authority for Advance Ruling passed an order stating that the activities performed by employees at the Corporate Office in the course of employment, such as accounting, system maintenance, etc., and in other branches as well, will be treated as a supply as per Entry 2 of Schedule I of the CGST Act.

This implies that now employers will be charged GST for availing services from their own employees?! The reason I am posting this thread is that there may be a significant amount of demand letters issued by the GST authority due to a lack of understanding of this Advance Ruling!

I would appreciate hearing your views on this matter. Please find the order copy attached.

Thank you.

Hello,

Thank you for your question. This topic is indeed significant, and it's important to understand the implications of the Karnataka Authority for Advance Ruling's recent order.

Firstly, let's clarify that the order does not imply that employers will be charged GST for availing services from their own employees. The CGST Act's Entry 2 of Schedule I refers to the supply of goods or services between related persons or between distinct persons as per section 25, in the course or furtherance of business.

This ruling is mainly applicable for situations where the Corporate Office is providing services to its branches situated in other states. These services can include accounting, IT maintenance, etc.

👩‍💼 Here's a simple breakdown of what you need to know:

1. If your Corporate Office is located in one state (say Karnataka) and it provides services to its branches in other states, then these services will be considered as 'supply' and will attract GST.
2. The GST paid can be claimed as Input Tax Credit (ITC) by the branches receiving these services.
3. This does not mean that the employer will be charged GST for availing services from its employees. The activities performed by employees in the course of their employment are not treated as a supply of service as per Entry 1 of Schedule III of the CGST Act.

👩‍💼 Now, what can you do to mitigate any potential issues?

1. Ensure that your accounting and invoicing systems are equipped to handle this inter-branch service supply and corresponding GST calculations.
2. Consult with a GST expert or tax consultant to fully understand the implications of this ruling on your business.
3. Stay updated with GST rulings and amendments that directly impact your business operations.

Remember, this ruling is still open to interpretation and may vary based on specific business scenarios. It's always best to seek legal help when in doubt.

I hope this clarifies your concerns. If you have any more questions, feel free to ask.