'No GST on salaries paid to CEOs or employees': Tax dept denies reports

The Central Board of Indirect Taxes and Customs (CBIC) on Friday rejected reports that the Centre was gearing to levy Goods and Services Tax (GST) on salaries paid to CEOs and CXOs of companies.

CBIC clarified that salaries are not subject to GST and no such demand on salaries paid to CEOs or employees has been made.

A report by the Economic Times on Thursday said that the tax department wants to impose 18% GST on salaries of chief executives.

According to the CBIC statement, reports that tax authorities want to impose GST on salaries paid to employees is factually incorrect and misrepresents tax authorities. 

The CBIC said in a statement that GST law position clearly states under Section 7(2) read with schedule three of the Central GST Act 2017 that salaried services by an employee to an employer will be treated neither as a supply of goods nor as a supply of services. 

"So salaries as such cannot be subject to GST. No notice has been issued to any company demanding GST on salaries whatsoever," it said.

The GST is charged on prices or charges by any supplier of goods or services from 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," it said, adding that it must also be made clear that offices of an organisation in different states are regarded as distinct persons under Section 25 of CGST Act. 

Hence, what is taxable under GST is the supply of goods and services by the head office to its branch office and vice versa, it said.

"Any tax charged on such supplies is available to the recipient as an input tax credit. This is not any additional cost to the organisation. Also, it is a worldwide practice under GST laws," the CBIC added. 

The ET report had said that taxmen want companies to proportionately distribute common costs from head office to branch offices and treat this as a supply as 10% of it has to be added to the cost and 18% could be levied on the total amount. Top companies and banks are already being questioned by the tax department with respect to cross-charging, the report said.