18% GST will be levied on services provided by branch office employees to head office.

Services provided by employees of branch offices of a company located in different states to its head office will attract 18 per cent GST. The Authority for Advance Ruling (AAR) has given this arrangement. AAR, the adjudicating body in Goods and Services Tax (GST) related disputes, has given this decision in the case of ProfiSolutions Pvt Ltd. The company had sought to know from the AAR whether the services provided to the head office would also come under the ambit of GST. ProfiSolutions has its registered office at Karnataka while it has branch office at Tamil Nadu.

Services will come under the ambit of GST

The branch office provides engineering, design and accounting services to its head office. The company’s contention was that the employees are employed in the company and work for the company as a whole and not for the head office or branch office. However, the AAR said that as per the GST provisions, it is necessary to take a GST registration in every state where it has a physical presence. Even if the supply of services takes place between two registration numbers of the same entity, the same will be charged to tax. This means that services provided by employees of branch offices of a company located in different states to its head office or by employees from head office to branch will be chargeable to GST.

GST liability will arise on services provided to others

“If the head office and branch office have different registrations, then GST liability will arise on the services provided by one to the other,” the authority said. Rajat Mohan, senior partner, AMRG & Associates, said the AAR’s decision allows for supply of services between two different GST registrants registered on the same PAN number to be taxed at the rate of 18 per cent. However, there is no clarity on how to calculate this tax without increasing the tax risk of the business.