1. GST is not merely confined to external business transactions but also internal transactions between employer and employee. There are two ways of supply :-
(a) Supply from Employee to Employer
(b) Supply from Employer to Employee
2. SUPPLY FROM EMPLOYEE TO EMPLOYER:-
(a) As we all know, Supply is must for an applicability of GST. As per clause I of schedule III of GST Act 2017, services by an employee to the employer in the course of or in relation to his employment’ shall not be treated as supply and hence such services are out of the purview of GST.
(b) Service provided by an employee to employer will be out of preview of GST only if it is be provided in the course of employment. For example, A Chartered Accountant ‘s core activity is to do audit and he provides entertainment services to employer on weekend. Such services will not be considered in the course of employment and hence will be subjected to GST.
3. SUPPLY FROM EMPLOYER TO EMPLOYEE:
(a) Employer and Employee are deemed to be related person as per Sec 2(84) of GST Act 2017.
(b) Further, Schedule 1 (Entry 2) of GST Act 2017 states that supply between related persons when made in the course or furtherance of business will be considered as supply even if it is without consideration.
4. BROAD PRINCIPLES FOR ANAYLISING GST LIABILITY ON EMPLOYER EMPLOYEE TRANSACTIONS:- In order to understand GST liability on employer employee transactions, following broad principals need to be analyzed :-
(a) FACILITY COMMON TO ALL EMPLOYEES :- Services provided free of charge to all employees by the employer will not be subjected to GST, (Press Release date 10 July 2017).
(b) REIMBURSEMENT TO EMPLOYEE– GST will not be levied on re reimbursement of expenditure to employee where such expenditure incurred by employee in the course of or in relation to employment.
(c) FACILITY PROVIDED TO EMPLOYEE FOR OFFICIAL USE IN NORMAL COURSE OF EMPLOYMENT:- Expenditure incurred by employer towards benefit extended to employee for official use / purpose will not be subjected to GST.
(d) CONTRACTUAL AGREEMENT :- Supply by employer to employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST. (Press Release date 10 July 2017).
5. ANALYSES OF TRANSACTIONS BETWEEN EMPLOYER AND EMPLOYEE
Sl |
TRANSACTION TYPE |
NATURE OF TRANSACTION |
GST APPLICABILITY |
INPUT TAX CREDIT (ITC). TO EMPLOYER |
REMARKS |
1 |
Subsidized or Free Tea / Coffee & Canteen Facility |
COMMON TO ALL |
NO GST |
NA |
Services provided free of charge to all employees by the employer will not be subjected to GST |
2 |
Payment of membership fees for , Club, Health and fitness center |
COMMON TO ALL |
NO GST |
NO ITC ITC Not available as the transaction falls under blocked credit list (Sec 17(5)(b)(ii) of CGST Act 2017) |
If Membership of a club, health and fitness center provided free of charge to all the employees by the employer then the same will not be subjected to GST. |
3 |
Uniform , Shoes provided by the employer |
COMMON TO ALL |
NO GST |
NA |
Uniform, Shoes provided to all the employees and in normal course of employment will not be subjected to GST. |
4 |
Reimbursement of Mobile / Phone Bill |
REIMBURSEMENT |
NO GST |
NO ITC ITC will not be available as invoice will be in the name of individual. |
Company reimburse mobile / phone bills to specific employees based on eligible criteria. These are not supply per se by employer , hence no GST. |
5 |
Mobile Hand Sets / Laptop |
OFFICIAL USE |
NO GST |
ITC Available on such purchases as these are purchase by employer in the course of business. |
Purchase of Mobile sets, Laptops and given to employees for official usages will not be subjected to GST. |
6 |
Temporary Accommodation for first week of joining |
OFFICIAL USE |
NO GST |
ITC NOT AVAILABLE ITC not available as services used by individual and not by the company |
Expenditure incurred by employer towards benefit extended to employee for official purpose will not be subjected to GST |
7 |
Transfer Benefits |
REIMBURSEMENT |
NO GST |
NA |
In case of inter unit / inter state transfer of employee, company reimburse traveling expenses and expenses related to transportation of house hold goods.GST will not be applicable on such re reimbursements.Process may be defined by the company |
8 |
Cash Bonus for referral as per Company Policy |
NORMAL COURSE OF EMPLOYMENT |
NO GST |
NA |
Cash Bonus by company for referral services is normal course of employment and will not be subjected to GST. |
9 |
Joining Bonus to New Employee |
CONTRACTUAL AGREEMENT |
NO GST |
NA |
Joining bonus to employee is in relation to employment and nature of contractual agreement hence not subject to GST |
10 |
Incentives or performance bonus to Employee |
CONTRACTUAL AGREEMENT |
NO GST |
NA |
Incentives / Performance Bonus to employee is in relation to employment and nature of contractual agreement hence Not subject to GST |
11 |
Payments under ESOP |
CONTRACTUAL AGREEMENT |
NO GST |
NA |
These transactions covered by employment contract and not subject to GST . |
12 |
Free Housing to Employee |
CONTRACTUAL AGREEMENT |
NO GST |
NA |
Free housing to the employees, when provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (CTC) will not be subjected to GST. |
13 |
Car Lease |
CONTRACTUAL AGREEMENT |
NO GST |
NO ITCITC Not available as the transaction falls under block credit list (Sec 17(5)(ii) of CGST Act 2017) |
Company purchase car from dealer on financial lease and give it to employee for office use. The amount equivalent to car entitlement reduced from the salary of the employee and the notional amount is added as perquisites in employee CTCSuch benefit extended to employee will not be subjected to GST. |
14 |
Leave Support |
CONTRACTUAL AGREEMENT |
NO GST |
NA |
Entitlement of AL, SL are part of contractual agreement and are not supply per se by employer , hence not liable to GST |
15 |
Notice Pay Recovery |
CONTRACTUAL AGREEMENT |
NO GST |
NA |
Notice pay recovery is a part of contractual agreement and hence no GST will be charged on that amount.Company need to appropriately word the same in employment letter. |
16 |
Company Car to employees , both for official and personal use( remains an asset in company books ) |
CONTRACTUAL AGREEMENT |
NO GST |
NOT ALLOWED ITC Not available as the transaction falls under block credit list (Sec 17(5)(ii) of CGST Act 2017) |
Company car to employee is in course of employment and part of Contractual Agreement . No supply per se by employer , hence not liable to GST |
17 |
Mediclaim and personal Accident policy for employee & family. |
NO SUPPLY BY EMPLOYER TO EMPLOYEE |
NO GST |
NO ITCSupply by Insurer to individual and not to company , hence ITC not available |
There is no supply per se by employer to employee , hence Not liable to GST.In the agreement / Contact with the insurer , it should be clearly provided that Company is merely making payment on behalf of its employees |
18 |
Recovery on account of loss of ID Card / Other Assets |
SPECIAL CASE (LIQUIDATED DAMAGE ) |
NO GST |
NA |
Such transactions to be treated as recovery of liquidated damage and not considered as supply under GST Act. |
190. |
SALE OF USED LAPTOP / OTHER ASSETS ( Capitalized in the books of Company) |
SPECIAL CASE |
GST APPLICABLEGST will be payable on open market value of such capital Asset reduced by 5% per quarter from date of invoice or transaction value, whichever is higher |
NO ITC |
It is a common practice in organizations to allow employees to purchase laptop and cars in subsidized rates which they were using during their employment .GST will be applicable on such transaction as transaction will be treated as supply from employer to employee. |
20 |
Long service award |
SPECIAL CASE |
NO GST |
NA |
Since these are to be treated in relation to employment. it is common for companies to pay specified amounts to employees who have completed specified years of service. |
6. MISCELLANEOUS REIMBURSEMENT NOT COVERED IN ABOVE TABLE :
(a) GIFTS TO EMPLOYEES:
(i) Many companies provides gift such as , memento, stationary, trophy, cloths, house-hold items on auspicious occasion like Diwali, farewell etc.
(ii) Provision of Schedule-I , Entry 2 of CGST Act 2017 states that gifts and perquisites supplied by companies to their employees up to a value of Rs 50,000/- per year by an employer to his employee are outside the ambit of GST.
(iii) However, gifts of value more than Rs 50,000/- made without consideration are subject to GST, when made in the course or furtherance of business.
(iv) Gift has not been defined in the GST law. In common, gift is made without consideration, is voluntary in nature and is made occasionally.
(v) Example 1 : Suppose, a single gift (i.e. Gold Bar) given during the Financial Year 2017-18 Rs. 75,000/- to the employee. In this case Gift amount is exceeds specified limit of Rs. 50,000/- per year per employee, so GST to be paid on Rs. 75000/-.
(vi) Example 2 : In case Individual gifts given during the Financial Year 2017-18 Rs. 60,000/- to the employee. In this case Individual gifts amount is exceeds specified limit of Rs. 50,000/- per year per employee, so GST to be paid on Rs. 10,000/-.
(vii) Company has to keep track on Gifts given to employees during FY to calculate applicable GST.
(viii) Input Tax Credit – If company availed ITC on items purchased and gifted to employee. It need to reversed because of specific exclusion of GST on Gifts to employees.
(b) FREE OR SUBSIDIZED TRANSPORT FACILITY –
(i) Company provides free / subsidized transport facilities to its employee for drop and pick up from home to office. There are two ways to analyze the case :-
(ii) GST is not applicable If providing Transport facility is a Contractual agreement and indicated in appointment letter of the employee.
(iii) In case, it is not covered in employment contract, it will be treated as supply by employer to employee and GST will be applicable. Being a related party transaction, GST need to be paid as per the open market value which may be considered as the amount paid by the company to the transporter.
(c) TRAVEL EXPENDITURE REIMBURSEMENT –
(i) Traveling expenditure reimbursement to employee by employer are not subject to GST as expenditure incurred by employee are for official usage .
(ii) However, Company can avail Input Tax Credit on such expenditure. In order to avail credit, employee should advised to get invoice from hotel in the name of Company. They should make sure that invoice contains correct name and GSTN No. of Company. They should enter necessary information like invoice no., GSTN No. of vendor, taxable value & Tax amount in reimbursement claim form. Same should be verify at the time of processing the claim.
CONCLUSION:- An attempt has been made to provide clarity in employer employee transactions. Any further query may be mailed to caanitabhadra@bel.co.in.
Author Bio
In case of purchase of uniform, Shoes form suppliers for the purpose of giving it to the employee at the free of cost, GST paid on the invoice can Claim as input tax credit as it is for the purpose of furtherance of business.
I have an practical problem.
Company Buy A Car for CEO official and Personal Purpose on 31.07.2013 for Rs. 10 Lac
And As per company policy Car is given to Employee after 5 Years (i.e. on 31.07.2018) for Rs. 5000.
Now My Qu. is On what amount GST is to be charged.
Pls. resolve as soon as possible.