The tax department has started questioning top companies and banks if they were passing on some of the common costs like salaries of chief executives to their branch offices.
The department 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% Goods and Services Tax (GST) could be levied on the total amount.
Some of the top companies headquartered in Pune, Mumbai and New Delhi have started receiving queries from the tax department on cross-charging. Under the GST framework, nothing is for free, including some of the common functions carried out at a company’s or a bank’s head office like human resource, IT functions, audit and legal fees paid.
So, for instance, if the chief executive officer of an organisation earns Rs 5 crore per annum, that amount would become a cost for the head office as that’s where the executive is located. The tax department wants the organisation to cross-charge this cost proportionately to other branches and pay 18% GST on it. A part of Rs 5 crore will be passed on to other branches in different states and treated as supply of services from the head office to the branch offices.
confusion around cross-charging could mean actual cost for the companies. In most of the organisations, this would have been ultimately revenue neutral but there is a catch.
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