Secondment of expats

Pursuant to the recommendations made by the GST Council in its 53rd meeting, clarifications have been issued by the government in respect of valuation of supplies by an overseas related party to an Indian entity. Further, clarification has also been issued with respect to claim of input tax credit based on date of issue of self invoice in case of tax payable on reverse charge basis in respect of services received from overseas suppliers. The key aspects are:

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1.???? Circulars

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a)????????? Valuation of supply of service between related parties where supplier is overseas: It has been clarified that where an overseas related party is supplying services to an Indian related party, then the valuation of such service shall be as follows, provided the Indian related party is entitled to full input tax credit in respect of tax paid on such services:

????????????????????????? i.??????? Where invoice/debit note is raised by overseas supplier – the value shall be as stated in the invoice so raised and tax is to be paid by the Indian entity on such value on reverse charge basis

???????????????????????? ii.??????? Where invoice/debit note is not raised by overseas supplier and no consideration is involved – the value shall be taken as NIL and no tax shall be payable on supply of such service.

Circular No. 210/4/2024-GST dated June 26, 2024

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This will apply to all matters of secondment of expats by HO / group companies to their Indian subsidiaries / related entities where it was being considered as supply of manpower service subsequent to the Supreme Court’s ruling in the case of Norther Operating Systems.

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Now, based on the clarification, tax is to be paid on the value of the debit note / invoice raised by overseas HO / group company towards the salaries / social security benefits etc paid to the expats overseas and claimed as reimbursement from the Indian subsidiary / related entity. Further, where no such reimbursement is claimed, then no tax shall be payable. However, this will apply only in those cases where full input tax credit is available to the Indian subsidiary / related entity.

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b)????????? Availability of input tax credit based on date of self invoice raised where supplier is unregistered: Where an unregistered party is supplying services to a registered Indian party, then the Indian party is required to pay tax on reverse charge basis and also raise a self invoice for value of such services. Input tax credit can be claimed based on such invoice. While the time limit provided for such a claim is November 30th following the end of financial year to which such invoice relates, it has now been clarified that the relevant financial year shall be considered to the financial year in which such self invoice is raised. However, in case of delay in raising of such self invoice, interest shall be payable by the Indian party and penalty u/s 122 of the CGST Act, 2017 may also be applicable.

Circular No. 211/5/2024-GST dated June 26, 2024

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Based on the clarification, in the matter of taxability of secondment of expats, even if the tax is paid based on the ruling of the Supreme Court or based on litigation initiated by the GST authorities, the input tax credit of the tax paid shall be available. However, interest shall be payable unless it is ruled by a Court of Law that such services of secondment of expats are not taxable. Further, penalty may also be applicable for delay in raising the invoices.

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Since these are clarifications, these will apply from July 1, 2017.