GST on Expat Salary Costs for Project Offices
Accounting entries for expat salary costs in a Project Office are not subject to GST.
- Ruling
- GST-ARA-38/2019-20/B-27, Mumbai, dated 11.03.2020
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Hitachi Power Europe GmbH asked if expat salary entries attract GST.
- The Authority for Advance Ruling (AAR) ruled these entries are not taxable.
- The Project Office is an extension of the foreign head office.
- Salary payments are excluded from GST under Schedule III of the CGST Act.
In short
Foreign companies with Project Offices in India often record salary costs for expat staff in their local books to meet Indian accounting rules. The company asked if these internal accounting entries count as a taxable service under the Goods and Services Tax (GST) system.
What has changed
How it worked before
It was unclear whether tax authorities would view these internal accounting entries as a 'supply' of services from the head office to the project office, potentially triggering a tax liability.
What has changed
The Authority decided that because the Project Office is not a separate legal entity, the expat staff remain employees of the head office. Since services provided by an employee to an employer are not considered a supply under GST law, no tax is due on these accounting entries.
Who this affects
Foreign companies operating in India through a Project Office or Liaison Office that employ expat staff.
An example
A foreign construction firm has a Project Office in Pune. They pay their expat project manager from their home country but record the cost in their Indian books. Based on this ruling, the firm does not need to pay GST on that accounting entry because it is not a taxable supply.
What you should do
If you are in a similar position, you may use this ruling as a reference for your tax position. However, remember that an Advance Ruling only legally binds the company that asked for it and its specific tax officer; it is not a general law that applies to every business automatically.
If you do nothing
If you assume this ruling automatically protects you, you risk a dispute with your local tax officer. If they disagree with your interpretation, you could face demands for unpaid tax, interest, and penalties. Always consult with a tax professional to confirm how this applies to your specific contract and structure.
The terms explained
- Project Office
- A temporary office set up in India by a foreign company to carry out a specific project.
- Schedule III
- A list in the GST law that describes activities or transactions that are treated as neither a supply of goods nor a supply of services, meaning they are not taxed.
- Reverse Charge Mechanism
- A system where the person receiving the service pays the tax instead of the person providing it.
The ruling in detail
Authority for Advance Ruling
M/s. Hitachi Power Europe GmbH
GST-ARA-38/2019-20/B-27, Mumbai, dated 11.03.2020 · Maharashtra
Questions before the authority
- Whether the Goods and Services tax (herein referred as 'GST') is applicable on the accounting entry made for the purpose of Indian accounting requirements in the books of accounts of Project Office for salary cost of Expat employees
Facts
The applicant is a foreign company that has established a Project Office in India to execute specific power projects. Expat employees of the Head Office work in the Project Office, and while their salary is paid by the Head Office abroad, the Project Office makes an accounting entry for these salary costs in its Indian books to comply with the Companies Act, 2013. The applicant sought a ruling on whether this accounting entry for salary costs is subject to GST under the Reverse Charge Mechanism.
Ruling
| Question | What the authority ruled |
|---|---|
| Applicability of GST on accounting entry for salary cost of Expat employees | Answered in the negative The transaction is not considered a supply as it involves services by an employee to the employer in the course of employment |
The Authority ruled that the accounting entry for the salary cost of expat employees is not subject to GST. It concluded that the Project Office is an extension of the Head Office, and the expat employees are employees of the Head Office, meaning there is an employer-employee relationship. Consequently, the transaction falls under Schedule III of the CGST Act and is not considered a supply.
Reasoning
The Authority determined that the Project Office is not a separate legal entity but an extension of the foreign Head Office. It relied on the provisions of Schedule III of the CGST Act, 2017, which excludes services provided by an employee to an employer in the course of employment from the scope of supply. Since an employer-employee relationship exists between the Head Office and the expat employees, the accounting entry for salary costs does not constitute a taxable supply of services. The ruling also referenced the definition of a Project Office under the FEMA Regulations.
Provisions relied on
- Section 97 of the Central Goods and Services Tax Act, 2017
- Section 98 of the Central Goods and Services Tax Act, 2017
- Schedule III of the CGST Act, 2017
- Section 203 of the Income Tax Act, 1961
- Section 6(6) of the Foreign Exchange Management Act, 1999
- FEMA (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016
For the practitioner
This ruling provides **favorable clarity** for foreign companies operating through Project Offices in India, confirming that accounting entries for expat salary costs do not attract GST. It reinforces the principle that such arrangements are **not a supply** due to the employer-employee relationship. Practitioners should note that this decision is specific to the facts where the Project Office is treated as an extension of the foreign entity.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/mah_aar_38_2019-20_b-27_11.03.2020_hpeg.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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