Note on Recovery of expenses form Employees wrt Food and Transportation facility etc: –

Now a days it’s very common that companies are doing some recoveries on account of food and transportation facility being provided to their employees, let us discuss these aspects under GST in simplest way:-

√ By virtue of Schedule I of CGST Act 2017, following activity to be treated as supply even if made without consideration.

  • 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.

√ As per the definition of related person, employer and employee are considered as related parties.

So, if any services if we are providing wrt food and transportation facility that will treated as supply and we need to pay GST on it.

Value of Supply on which GST will be applicable: –

As per rule 28 of CGST rules 2017, The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall-

(a) be the open market value of such supply.

(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality.

(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order.

So, we are providing any supply to employees that value for GST will be the OMV of that supply will be considered as value of Supply.

Recently an advance ruling issued by Kerala in case of Caltech Polymers Pvt Ltd which says that recovery of food expenses from employees for the canteen services provided by company would come under the definition of outward supply and therefore, taxable as a supply of service under GST.

Conclusion

1. Recovery of expenses from employees for the services provided by company would come under the definition of outward supply since its ancillary to business activity with consideration and So, GST will be applicable.

2. Since it is a related party transection as well by virtue of schedule I of CGST Act, 2017. So, GST will also applicable on that this transection even is there is no consideration.

3. On Safe side, we should pay GST on this transection but now the question is on which value, we should suggest that it should pay on service amount, which is providing to the employees, but management decided as it deems fit.

4. Input tax credit allowability :- ITC will be allowed where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply (as mentioned in point 1st above) of the same category of goods or services or both or as an element of a taxable composite or mixed supply.

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Qualification: CA in Practice
Company: MIS & Associates
Location: Gurgaon, Haryana, IN
Member Since: 18 Dec 2019 | Total Posts: 4

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