Introduction
Employee secondment — where an employee of one company is deputed to work for another company — is common in group companies. The question arises: How is employee secondment treated under GST?
This guide explains the taxability, valuation, and compliance obligations.
Legal Framework: Taxability of Secondment
Secondment as a Supply
The Supreme Court in CC, CE & ST Bangalore v. Northern Operating Systems (P.) Ltd. [2022] 138 taxmann.com 359 held that secondment of employees constitutes a supply of manpower services and is subject to GST.
Employer-Employee Relationship
The critical test is whether the secondee employees are under the control and supervision of the host entity. If yes, the arrangement is a supply of manpower services.
GST Rate on Secondment
Secondment of employees attracts 18% GST.
Valuation of Secondment Charges
Cost-to-Cost Reimbursement
Where the salary is reimbursed on a cost-to-cost basis without any markup, the value of supply is the actual cost.
Markup
Where a markup is charged, the value of supply includes the markup, and GST applies to the full amount.
Pure Agent Exception
Where the seconding company acts as a pure agent of the host entity and the conditions under Rule 33 are satisfied, the reimbursement may be excluded from taxable value.
Documentation Requirements
- Secondment Agreement: Documentation of the secondment terms.
- Secondment Invoice: Invoice for the secondment services.
- Payroll Records: Documentation of salary and costs.
- GSTR-1 Reporting: Report the secondment income.
Best Practices
- Determine the Nature of Relationship: Assess whether the secondee is under the host entity's control.
- Apply Correct GST Rate: Apply 18% GST where secondment is a supply.
- Maintain Records: Document the secondment arrangement.
- Seek Professional Assistance: For complex secondment arrangements.
Conclusion
Employee secondment is a supply of manpower services under GST, attracting 18% GST. The critical test is control and supervision. Proper documentation is essential.
Dealing with employee secondment? Anuj Desai & Associates provides expert guidance on GST compliance. Contact us today.
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