As a new rule under the GST Law comes to light, organizations with offices or branches across different states in the country will be required to pay GST for any exchange of services. This tax will be applicable to services such as HR, accounts, payroll, etc. Invoices for any such services will have to be issued.
However, this tax will not be applicable to companies in power, healthcare, liquor, and education sectors.
As per the GST Law, services provided by an office of an organization in one state to the office of the same organization in another state is regarded as a supply of services between two distinct persons. This implies organizations with offices across multiple states will face goods and services tax (GST).
The ruling came in soon after the Karnataka Authority for Advance Rulings (AAR) stated that HR and payroll tasks carried out by companies across their branch offices in other states would face GST and have to issue invoices. In a case pertaining to Columbia Asia Hospitals, AAR had decided such services provided by the head office to other locations are required to be cross charged and GST must be levied on them.
Speaking about the ruling, Pratik Jain, National Leader - Indirect Taxes, PWC said, “In most cases, it's a revenue neutral exercise except where the output is either exempt or not within GST, where GST charged becomes a cost.”
The government seeks to bring services provided by an office of an organization in one state to another office in another state under the umbrella of GST.
GST Council will soon be issuing a circular sharing details on the distribution of input tax credit between head office and branch offices. Structured as an FAQ, the circular will give clarity on the head office functions, payroll, procurement, distribution and management expenses, branch maintenance, etc.
Given the string of upcoming HR Tech startups focused on offering HR and Payroll software to organizations, leveraging technology to further minimize service cost for HR might just give them a competitive edge.