Understand the GST implications on employer-employee transactions as per the CGST Act, 2017. Learn about taxable supplies, exemptions, and valuation rules.
Transactions between employer & employee are cover under related parties transactions as per explanations appended to Sec 15 of CGST Act, 2017. This article is an attempt to analyse the GST implications on employer- employee transactions.
The taxability of employer & employee transactions are govern by Schedule I & Schedule III of CGST Act, 2017.
Companies might allow employees to purchase asset of the company like laptop/computer, vehicles, official furniture etc. after certain period of use in their business at depreciated value or at a nominal cost. In some cases, an organization may allow the employee to use company asset for personal purposes. Permanent transfer of business assets is supply of goods while free use of company assets by employee for personal use which are not in the nature of perquisites or cost to company, is supply of services. The employer shall be liable to pay GST in both the cases under forward charge on transaction value, irrespective of whether consideration involved or not.
Schedule I of CGST Act, 2017 covers transactions which are treated as supply, even if consideration not involved.
Schedule III of CGST Act, 2017 covers transactions that is treated as neither supply of goods nor supply of services.
| Schedule of CGST Act | Description |
| Para 1 : Schedule I
(Supply, even if consideration not involved) |
Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
“Permanent transfer” means transfer without any intention of receiving the goods back. |
| Para 2 : Schedule I
(Supply, even if consideration not involved) |
Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business.
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. |
| Para 1 : Schedule III
(Neither supply of goods nor supply of services) |
Services by an employee to the employer in the course of or in relation to his employment |
As per Para 2 of Schedule I of CGST Act, 2017, the employer will have to pay taxes on supply of goods or services to employee when made in the course or furtherance of business , irrespective of whether the credit is availed on such assets or not and even if consideration is not involved.
| Supply | Taxability | Remarks |
| Gift by employer
( Festival gifts/ New year gifts etc.) |
Exempted up to Rs.50,000 per employee per year | Para 2 : Schedule I |
| Services provided by an employee to the employer in the course or in relation to his employment
( Services provided as per contractual agreement between employer & employee) |
Neither supply of goods nor supply of services | Para 1 : Schedule III |
| Use of company asset by employee for personal purposes | Supply of services
Taxable service in the hands of employer even if provided without consideration |
Para 2 : Schedule I |
| Sale/Transfer/disposal of Business assets by employer to employee with /without consideration
(e.g. laptop, car, furniture, mobile etc.) |
Taxable supply (goods) in the hands of employer | Para 2 : Schedule I
|
| Sale/Transfer/disposal of Business assets by employer to employee without consideration on which ITC availed
(e.g. laptop, car, furniture, mobile etc.) |
Taxable supply (goods) in the hands of employer
( because employer employee are related person as per explanation appended to Sec 15) |
Para 1 : Schedule I
Valuation Rule 28 will apply |
| Employee of parent company providing services to Subsidiary/associates company | Supply of services
Taxable service in the hands of employer. (Parent company shall be liable to pay GST on services provided to Subsidiary/ associates company). |
Since Subsidiary/associates company are separate legal entity having different PAN/GSTIN , this transaction will not covered within the meaning & scope of distinct person |
| Service provided by Director to a company
( If Director ‘s remuneration is treated by the company in its books as professional services & not salary) |
Supply of services
Taxable service in the hands of the company under RCM U/s 9(3) of CGST Act. |
Para 2 : Schedule I
[ Refer Circular No.140/10/2020- GST Dated 10-06-2020 ]
|
| Reimbursement of bills or allowance
(TA/Conveyance/Medical bill/ Telephone bill/Membership fee etc. |
Not a taxable supply under GST, if provided as per terms of employment. |
GST on perquisites provided by companies to its employees
(CBIC Press release dated 10th July 2017)
1) Services by an employee to an employer in the course of employment are outside the scope of GST.
2) Any supply by the employer to the employee in terms of a contractual agreement between the employer and the employee will not be subject to GST.
3) If membership of a club or health and fitness center is provided free of charge to all the employees by the employer, the same will not be subject to GST, if GST is paid when procured by the employer.
4) Similarly, when free housing is provided to the employees in terms of the contract between the employer and the employee and is part and parcel of the cost-to-company, it would not be subject to GST.
|
Any activity for the comfort, convenience & welfare of employee cannot be treated as having been done in the course or furtherance of business. This has been held by the Hon’ble Bombay high court (Nagpur bench), in its order dated 11.10.2010, in the matter of Central Excise, Nagpur Vrs. M/s Manikgarh Cement [2010 (20) S.T.R.456 (Bom)]. The guesthouse service provided by employer to employee as well as non-employee cannot be treated as an activity in the course or furtherance of its business. Hence tax paid on inward supply of goods & services for maintenance of guesthouse are not eligible for ITC [Order No.02-03/ODISHA-AAAR/2018-19 Dated 21.01.2019]. |
*The author is a Fellow member of The Institute of Chartered Accountants of India, New Delhi and Fellow member of The Institute of Cost Accountants of India, Kolkata. He can be reached at gstresolve@gmail.com , Mob .9805072910
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