Article made an attempt to Clarity – GST Impact On Employees/ Recoveries From Employees With Advance Rulings.

Employee related transactions are bifurcated in two parts – (i) Services provided by employer to employee and (ii) Services provided by employee to employer.

Sr. No. Particulars Legal Provisions and Taxability
1. SERVICES PROVIDED BY EMPLOYER TO EMPLOYEE

  • Relieving from duties of employee (Short notice pay recovery)
  • Medical insurance facility (chargeable from employees)
  • Food (lunch/ Dinner)/ Canteen services (chargeable from employees)
  • Recovery of salary already paid
  • Beverages from machines (Coffee/ Soup etc.)
  • Shuttl service
  • Cab
  • Health club/ Gym
  • Creche facility
  • Car Parking facility
  • Others (T-shirts/ Diaries etc.)
  • Books/ Journals subscription
  • Group mediclaim/ Personal accident insurance taken for all employees
  • Health check up facility
  • Sale of used assets like laptop/ desktop to employees
  • Recovery for loss of ID cards, calculators etc.
  • Diwali/ Festivals/ Other Gift
1.     Short Notice pay recovery

Decision of Madras High Court – (GE T & D INDIA LIMITED Vs  DEPUTY COMMISSIONER OF CENTRAL EXCISE, CHENNAI)

  • The definition in clause (e) of Section 66E is not applicable in case of notice pay recovery. The employer has not ‘tolerated’ any act of the employee but has permitted a sudden exit upon being compensated by the employee in this regard. Therefore, service tax shall not be applicable on notice pay recovery.

Author’s view- This issue is litigative. However, above mentioned decision is equally relevant under GST regime as well which contains similar provisions.

2. Medical insurance facility/ Recovery of medical insurance premium from employees

Advance Ruling of Maharashtra – POSCO INDIA PUNE PROCESSING CENTER PRIVATE LIMITED

Order – Recovery of parent’s health insurance expenses from employees does not amount to supply of service under GST law. Therefore, GST shall not be applicable on such recovery by employers.

Similar advance Ruling of Uttar Pradesh- ION TRADING INDIA (P) LTD.

Order -The recovery of premium amount from employee and subsequent deposit it with insurance Company cannot be treated as supply of service in the course of furtherance of business. Therefore, GST shall not be applicable on such recovery by employers.

Author’s view – This ruling is equally relevant if recovery is related to medical insurance reimbursement of employee and spouse of employee.

3. Food (lunch/ Dinner) Canteen services (Recovery of food charges from employees)

Advance Ruling of Kerala – M/s. CALTECH POLYMERS PVT. LTD.

Order – The supply of food items to the employees for consideration in the canteen run by the appellant company would come under the definition of ‘supply’ and would be taxable under GST.

4.  Recovery of salary already paid

Decision of Appellate Tribunal (Allahabad) – (HCL LEARNING LIMITED VS COMMISSIONER OF CGST, NOIDA)

  • If an employer recovers an amount out of the salary paid to the employee if the employee breaches the contract of total term of employment, said recovery is out of the salary already paid by employer.
  •  Therefore, service tax shall not be applicable on such recovery as salary is not covered in the provisions of service tax.

Author’s view- This ruling is equally relevant under GST regime as well which contains similar provisions.

5. Beverages, Shuttl service, Cab, Health club/ Gym, Creche, Car parking facility, T-shirts, Diaries, Books, Journals, subscriptions, Group mediclaim/ Personal accident insurance taken for all employees, Health checkup facility

As per press release issued by CBIC on 10 July 2017, If services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer.

6. Sale of used assets like laptop/ desktop to employees

Decision of Supreme court – State of Tamil Nadu V Binny Ltd. (1982) 49 STC 17 (SC)

Sales effected in stores maintained by Company as a welfare measure for employees was held as incidental to main business and hence taxable.

Author’s view- This ruling is equally relevant under GST regime as well which contains similar provisions

7. Recovery for loss of ID cards, calculators etc.

Above mentioned recoveries from employees are covered under the definition of supply under GST law. Therefore, GST shall be applicable on such types of recoveries on OPEN MARKET VALUE due to related party transaction.

8. Diwali/ Festivals/ Other Gift

As per press release issued by CBIC on 10 July 2017, Gifts upto a value of INR 50,000 per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than INR 50,000 made without consideration are subject to GST, when made in the course or furtherance of business.

2. SERVICES PROVIDED BY EMPLOYEE TO EMPLOYER

  • Basic salary
  • Joining Bonus
  • Performance/ variable Bonus
  • Allowances (HRA/ DA/ Children Education/ Transport/ Conveyance etc.)
  • Diwali/ Festival Bonus
  • Long service Awards
  • Employee Referral Bonus
  • Transfer Benefits
  • Sales Incentives
  • Sitting fees
  • ESOP
  • Free Accommodation
  • Free Mediclaim insurance
  • Free Uniform/ shoes etc.
  • Free Car on lease scheme
  • Reimbursements by employer to employees

√ Food Expenses

√ Transportation Expenses

√ Mobile bills/ Data card

√ Training/ seminar

√ Boarding and Lodging

√ Travelling Expenses

√ Purchase of mobile Phone etc.

√ Consumables

√ Postal and courier charges

√ Survey materials etc.

  • As per Schedule III read with section 7 of CGST Act, 2017, services by an employee to the employer in the course of or in relation to his employment has been considered as neither supply of goods nor supply of services.
  • Accordingly, any service by an employee in the course of or in relation to his employment shall not be considered as supply and GST shall not be applicable.

As per press release issued by CBIC on 10 July 2017

  • It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods nor supply of services).
  • It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST.

Notes: It is assumed that employer has considered Diwali/ Festival bonus, Long service awards, employee referral bonus as part of salary of employees.

If employer has not considered Diwali/ Festival bonus, Long service awards, employee referral bonus as part of salary of employees, employer may cover these items under the exemption limit of INR 50,000 under gift category.

Notes: – 1) This article is solely for the information purpose.

2) This article is based on statutory/ legal positions including judicial and administrative interpretations.

Author can be reached at cavipinmittal@gmail.com for any further clarifications, suggestions or feedback.

Author Bio

Qualification: CA in Job / Business
Company: Info Edge (India) Limited - Naukri.com
Location: Delhi, New Delhi, IN
Member Since: 31 Oct 2019 | Total Posts: 5
A Chartered Accountant with more than 8 years of work experience in the role of Indirect Taxation. Currently working as Manager in Info Edge (India) Ltd. (Naukri.com), previously worked in KPMG (Big 4). Extremely passionate about networking, GST compliance's. I have written some articles which ha View Full Profile

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