Mumbai: The Goods and Services Tax (GST) authorities have sent tax notices to the Indian arms of around 1,000 multinational corporations (MNCs) for payments of 18 per cent tax on salaries and allowances paid to foreign expatriates (expats) by their overseas parent companies.
This issue came to light during audits of the local arms of MNCs across various sectors, including smartphones, automobiles, software, FMCG, consumer durables, and cosmetics, according to officials.
The tax demands range from Rs 1 crore to Rs 150 crore for the period between FY18 and FY22.
Notice to Maruti Suzuki, HUL & others
Maruti Suzuki was asked to pay Rs 100 crore, and FMCG giant Hindustan Unilever (HUL) was asked to pay Rs 144 crore on account of salaries paid to employees from overseas parent companies.
The tax issue emerged after a Supreme Court verdict in May 2022, which held that salaries paid by Indian entities for expats seconded by the foreign parent company to the Indian entity are liable to service tax under reverse charge basis as the payment will be considered 'manpower supply' services provided by the foreign parent company to the Indian entity. Following the verdict, the GST department has issued tax notices to several MNCs, making tax demands.
GST authorities insist that the salary or allowance of expats paid either fully or partially by the foreign company and later reimbursed by the Indian company to the foreign company is akin to 'supply of manpower' and hence taxable under the GST regime.
"If salaries are directly paid by the Indian company to the employees and not reimbursed, they won't attract GST, as in that case expats are perceived as employees of the Indian company only," clarified a senior GST official.
Their salaries are subject to TDS provisions under Section 192 of the Income Tax Act and PF provisions in similar ways as applicable to any Indian employee engaged by the same company.