GST is instrumental to make HR policies simpler and reduce the reimbursement and increased in the salary under the heads of “Income from Salary” in accordance with Income Tax Act 1961. It is also likely stated that Human Resource Department has been involved in implementation of new taxation system for statutory compliances also. Let us understand various aspects of employee cost vis-à-vis recovery from employees and impact on GST.
In accordance with Section 7 of CGST Act 2017, “Meaning & Scope of Supply” clearly mentions the inclusion / exclusion of employee providing services to employer or employer is providing services to employee as well as the relation with each other. We give below the brief thereof.
1. Employee providing services to the employer in the course of employment is neither goods nor services. (Schedule III to Section 7-Sr. 1)
2. Employee and employer are related (Explanation (a) (iii) to subsection (5) of section 15 of CGST Act 2017.
3. Supply to related person even without consideration is taxable supply (Schedule I to Section 7 – Sr. 2)
4. Gift to employees exceeding Rs. 50,000/- per employee per year even without consideration is taxable supply. (Schedule I Section 7 – Proviso to Sr. 3)
In view of the above, it is important to analyze any payment made to an employee or any recovery made from employee to ensure 100% statutory compliance under the GST Era.
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- ♦ Salary / Wages included in Form 16:
- ♦ Food Card to Employees:
- ♦ Canteen:
- ♦ Recovery of balance in food card in case of Full & Final Settlement:
- ♦ Canteen Expenses – Recovery from Contract Employees:
- ♦ Gifts to Employees:
- ♦ Reimbursement of Training:
- ♦ Transport Recovery from Employees:
- ♦ Transport Recovery from Other than Employees:
- ♦ Higher Education/Certificate Course:
- ♦ Stipend to Graduate/post graduates and Expenses related to them:
- ♦ Notice Pay Recovery – F&F Settlement
- ♦ Mobile Expenses:
- ♦ Internet Expenses (Dongal & WiFi):
- ♦ Recognition Trips for Area Office Employees:
- ♦ Referral Bonus
- ♦ Professional Membership Fees
- ♦ House Deposit (For new joining and Relocation)
- ♦ Health Check Up Expenses (Incurred by Employee & reimbursed by company)
- ♦ Creche Charges
- ♦ Access Card Lost recovery
- ♦ Candidate Interview Expenses:
- ♦ Per Day Allowance during travel:
- ♦ Personal Accident Policy Recovery
- ♦ Group Medical Insurance recovery
- ♦ Awards to Employees
- ♦ Uniform, T-Shirts, Jackets, Mugs, Diaries etc. or such goods given to employees for specific occasions or on yearly basis:
- ♦ Recovery from employees against loss of uniforms, safety kits. Etc
- ♦ Relocation Expenses
- ♦ Recovery of Relocation Expenses (In case of discontinuance)
- ♦ Car Lease Company Policy
- ♦ Issue of Petrol Card / Fuel Coupon to employees:
- ♦ Reimbursement of Expenses incurred for the purpose of official use
♦ Salary / Wages included in Form 16:
This is the salary payment made to employees by the employers in the course of employment and therefore is neither goods nor services and out of the scope of GST
♦ Food Card to Employees:
It is considered for computation of taxable salary under Income Tax and hence out of purview of GST. If its is not considered in taxable salary under the Income Tax Act, 1961 then it will be considered as free supply without consideration and therefore covered under taxable supply and GST will be paid as outward supply by the employer on the open market of value of such food.
♦ Canteen:
Number of companies / factories will have the canteen premises. If such canteen premises is used for cooking and service of the food to the employees at the subsidized value or free, still GST will be payable as follows :
| Particular | Option 1
When food is prepared by outdoor caterer and served at the premises of factory / company |
Option 2
When food is prepared by outdoor caterer and served at the leased / rented premises owned by factory / company |
Option 3
When food is cooked in the factory / company premises by contractor and served the food at the premises of factory / company |
| Input Tax Rate | 18% | 5% | 5% |
| Output Tax Rate | 5% (without ITC) | 5% (without ITC) | 5% (without ITC) |
| Value on which tax is payable | Open Market Value i.e. Value of Inputs or recovery whichever is higher | Open Market Value i.e. Value of Inputs or recovery whichever is higher | Open Market Value i.e. Value of Inputs or recovery whichever is higher |
| Cost to the Company | No Input Tax Credit i.e. 18% and 5% on value of Inputs or recovery whichever is higher i.e. min 23% of Input value | No Input Tax Credit i.e. 5% and 5% on value of Inputs or recovery whichever is higher i.e. min 10% of Input value | No Input Tax Credit i.e. 18% and 5% on value of Inputs or recovery whichever is higher i.e. min 23% of Input value |
It is always better to act as a pure agent for payment to outdoor caterer on behalf of the employee and recovery thereof from the employee. In such circumstances, the cost can be reduced to 18% and if the place is given on rent to outdoor caterer and then he serves the food, payment is made to outdoor caterer on behalf of employees and recovery thereof from the employees, then cost can be reduced to 10%.
♦ Recovery of balance in food card in case of Full & Final Settlement:
Generally, food card is given by the company and if person leaves then recovery of balance food card is made on full & final settlement. GST Applicable as outward supply (B2C), valuation will be amount of balance recovered and GST @18% will be payable.
Invoice to be raised by Employer as outward supply and reported as B2C transaction in GSTR-1.
♦ Canteen Expenses – Recovery from Contract Employees:
GST Applicable as outward supply (B2B considering contractor as registered), valuation will be Transaction Value and GST @12% will be payable. Invoice(B2B and B2C) to be raised by Employer and reported in GSTR-1.
♦ Gifts to Employees:
If exceeds Rs. 50000/- per employee per year then outward supply. Valuation will be at open market value and rate will be @18%.
1) If Exceeds Rs. 50,000/-then Invoice to be raised.
2) If below Rs. 50,000/- it will be treated as Non-taxable supply and ITC reversal to be done.
Cumulative Control Sheet to be maintained for every employee as to evidence it is not exceeding Rs. 50,000/- amount in excess of Rs.50,000 will be taxable as gift to employee.
In case of absence of a control sheet, it will be taxable.
♦ Reimbursement of Training:
If, invoice is in the name of employee and reimbursement is made to him / her then, it should be ensured that such employee should at least mention the GSTN of the company, otherwise whatever GST is charged will become cost, since no ITC can be availed.
It has been clarified by the CBIC that when reimbursement is made to the employee, such amount will not be treated as receipt from unregistered person, since the employee is not providing services in the course of business or furtherance of the business. Hence it is out of the scope of supply and no tax will be payable either employee or employer. However, GST charged on such training invoice will be the cost, since no ITC can be availed, since invoice will be in the name of employee and no GSTN is given. Such transactions will be treated as B2C transaction and not B2B transaction.
Therefore, it is advisable that employee should ensure to take the invoice in the name of company.
♦ Transport Recovery from Employees:
Recovery will be taxable as an outward Supply in GST. Being the related party, valuation will be at open market value. However, if contractor is providing the services of bus for the travel of the employees, then input tax credit can be availed on such services, since employer will be providing outward services to their employees.
Recovery will be taxable as an outward Supply in GST. Being the related party, valuation will be at open market value. GST will be payable @ 5%
Invoice to be raised by Employer
♦ Transport Recovery from Other than Employees:
Recovery will be taxable as an outward Supply in GST. Being the unrelated party, valuation will be at transaction value and GST will be payable @ 5% and Invoice to be raised by Employer and report in GSTR-1 as B2B / B2C transaction.
♦ Higher Education/Certificate Course:
Most of the time, company sponsor employees for higher education / certificate course. In such circumstances, either company pays the fees directly to Institute, therefore such invoice will be in the name of employee alongwith GSTN and company is entitled to take the ITC. It will have to be booked as a training expenses and avail ITC otherwise there are likely chances to consider this as gift. In such circumstances, it should be considered as higher limit of Rs. 50,000/- per employee per year for the cumulative gifts and will be considered as exempted supply being non-taxable and proportionate reversal of credit will have to be made in terms of Rule 42 & 43 of CGST Rules 2017.
However, if it is recovered from the salary, either in installment or otherwise, company will have to raise the invoice on employee and pay the tax on the full amount at one time only. If it is not received from the employee, but employee leaves the employment before agreed time, then certain companies recover such amount or some amount from the employee at the time of full & final settlement. In such circumstance also, it will be considered as outward supply and tax invoice will have to raise and GST has to be paid at the rate of 18% and report such transaction in GSTR-1. If reimbursement is made to the employee against higher education or certificate course, then also no GST will be payable
Stipend is paid to the trainees and they are not considered as employee and if there is a contractual obligation and there is employer and employee relationship. In both the circumstances no GST will be payable, since such training is neither providing services as employee nor providing services in the course of business or furtherance of the business and hence not covered under “Meaning & Scope of Supply”.
♦ Notice Pay Recovery – F&F Settlement
Notice Pay Recovery is made on the breach of contract and tolerance of an act of breach of contract is covered as declared services under schedule II to Section 7 of the CGST Act 2017 and therefore, company will be liable to pay GST @ 18% as outward supply being declared service and Invoice to be raised by Employer and such transaction to be reported in GSTR-1 as B2C.
♦ Mobile Expenses:
If it is considered for taxable salary, it will be outside the purview of GST. If mobile is given by the company, it has to be ensured it is for the official use and not for personal use. If it is used for personal use, then proportionate ITC will have to be reversed. If any expenditure is recovered from employee, it will be treated as outward supply and GST will be payable @18%.
If mobile is in the name of employee and reimbursement of such invoice is made to employee then no ITC can be available of GST reflecting on mobile bill of the employee. It will be the cost.
♦ Internet Expenses (Dongal & WiFi):
If invoice is in the name of employer then credit can be availed, otherwise if it is in the name of employee and reimbursement is made, it will be outside the purview of supply and GST on such invoice will be the cost. It has to be ensured that Dongal / Wi-Fi provided by company is used only for official purpose an dif used for personal purpose, proportionate ITC will be required to be reversed.
♦ Recognition Trips for Area Office Employees:
If it is not considered as gift, then it should be included under taxable salary.
If exceeds Rs. 50000/- per employee per year then outward supply. Valuation will be at open market value and rate will be @18%.
1) If Exceeds Rs. 50,000/-, then Invoice to be raised.
2) If below Rs. 50,000/-, it will be treated as Non-taxable supply and ITC reversal to be done.
♦ Referral Bonus
It has to be considered as taxable salary and to be included in Form 16, hence out of GST purview.
♦ Professional Membership Fees
Most of the time, company either pays the professional membership directly or gives the reimbursement to the employee. It can be considered as gift and Cumulative Control Sheet to be maintained for every employee as to evidence it is not exceeding Rs. 50,000/-.
In case of absence of a control sheet, it will be taxable.
If exceeds Rs. 50000/- per employee per year then outward supply. Valuation will be at open market value and rate will be @18%
1) If Exceeds Rs. 50,000/- then Invoice to be raised.
2) If below Rs. 50,000/- it will be treated as Non-taxable supply and ITC reversal to be done.
♦ House Deposit (For new joining and Relocation)
It is in nature of loan and therefore it is not covered under “Meaning & Scope of supply” and hence no GST will be payable.
♦ Health Check Up Expenses (Incurred by Employee & reimbursed by company)
It is covered under sr. no. 2 Schedule I (Gift). Cumulative Control Sheet to be maintained for every employee as to evidence it is not exceeding Rs. 50,000/-.
In case of absence of a control sheet, it will be taxable.
If exceeds Rs. 50,000/- per employee per year then outward supply. Valuation will be at open market value and rate will be @18%.
1) If Exceeds Rs. 50,000/-, then Invoice to be raised.
2) If below Rs. 50,000/- it will be treated as Non-taxable supply and ITC reversal to be done.
♦ Creche Charges
It is a mandatory requirement. Therefore, no recovery also can be made and hence it is out of “Meaning & Scope of Supply”. If Creches charges are paid directly to Creche owner on behalf of employees or reimbursed to the employees then, it will be considered as gift.
It will be covered under sr. no. 2 Schedule I (Gift). Cumulative Control Sheet to be maintained for every employee as to evidence it is not exceeding Rs.50,000/-
In case of absence of a control sheet, it will be taxable.
If exceeds Rs. 50000/- per employee per year then outward supply. Valuation will be at open market value and rate will be @18%
1) If Exceeds Rs. 50,000/-, then Invoice to be raised.
2) If below Rs. 50,000/- it will be treated as Non-taxable supply and ITC reversal to be done.
♦ Access Card Lost recovery
This is the tolerance of an act and in nature of penal penalty and not recovered as value of goods and therefore, company will be liable to pay GST @ 18% as outward supply.
Invoice to be raised by Employer and such transactions to be reported in GSTR-1 as B2C.
♦ Candidate Interview Expenses:
If bills are in the name of probable employee, then also no GST will be payable since such person is not providing service in the course of business or furtherance of business in view of ratio laid down by Govt. of India, Ministry of Finance through their Press Note dtd. 10th July 2017.
If bill is in the name of company and if GSTN is mentioned, then company can avail ITC and if GSTN is not mentioned then it will be the cost.
♦ Per Day Allowance during travel:
No GST will be payable, since such employee is not in the furtherance of business, services rendered by him cannot be considered as Supply in view of ratio laid down by Govt. of India, Ministry of Finance through their Press Note dtd. 10th July 2017
♦ Personal Accident Policy Recovery
If it is not considered as gift, then it should be included under taxable salary.
Cumulative Control Sheet to be maintained for every employee as to evidence it is not exceeding Rs.50,000/-
In case of absence of a control sheet, it will be taxable.
If exceeds Rs. 50000/- per employee per year then outward supply. Valuation will be at open market value and rate will be @18%
1) If Exceeds Rs. 50,000/-, then Invoice to be raised.
2) If below Rs. 50,000/- it will be treated as Non taxable supply and ITC reversal to be done.
♦ Group Medical Insurance recovery
If it is not considered as gift, then it should be included under taxable salary.
Cumulative Control Sheet to be maintained for every employee as to evidence it is not exceeding Rs.50,000
In case of absence of a control sheet, it will be taxable.
If exceeds Rs. 50000/- per employee per year then outward supply. Valuation will be at open market value and rate will be @18%
1) If Exceeds Rs. 50,000/- then Invoice to be raised.
2) If below Rs. 50,000/- it will be treated as Non-taxable supply and ITC reversal to be done.
♦ Awards to Employees
If, it is not considered as gift, then it should be included under taxable salary, but if it is not considered in taxable salary, then it will be considered as a gift.
Cumulative Control Sheet to be maintained for every employee as to evidence it is not exceeding Rs.50,000
In case of absence of a control sheet, it will be taxable.
If exceeds Rs. 50000/- per employee per year then outward supply.Valuation will be at open market value and rate will be @18%
1) If Exceeds Rs. 50,000/- then Invoice to be raised.
2) If below Rs. 50,000/-it will be treated as Non taxable supply and ITC reversal to be done.
♦ Uniform, T-Shirts, Jackets, Mugs, Diaries etc. or such goods given to employees for specific occasions or on yearly basis:
These are given in the course of employment. It is given for the office purpose and suitable note to be put in the employee handbook and thereafter it will not be considered as goods or services.
♦ Recovery from employees against loss of uniforms, safety kits. Etc
This is the tolerance of an act and in nature of penal penalty and not recovered as value of goods and therefore, company will be liable to pay GST @ 18% as outward supply.
Invoice to be raised by Employer and such transactions to be reported in GSTR-1 as B2
♦ Relocation Expenses
It should be considered as part of taxable salary, but if it is not considered in taxable salary, then it will be considered as a gift.
Cumulative Control Sheet to be maintained for every employee as to evidence it is not exceeding Rs.50,000
In case of absence of a control sheet, it will be taxable.
If exceeds Rs. 50000/- per employee per year then outward supply. Valuation will be at open market value and rate will be @18%
1) If Exceeds Rs. 50,000/- then Invoice to be raised.
2) If below Rs. 50,000/-it will be treated as Non-taxable supply and ITC reversal to be done.
♦ Recovery of Relocation Expenses (In case of discontinuance)
This is the tolerance of an act and in nature of penal penalty and not recovered as value of goods and therefore, company will be liable to pay GST @ 18% as outward supply.
Invoice to be raised by Employer and such transactions to be reported in GSTR-1 as B2C.
♦ Car Lease Company Policy
If lease asset is not in the books of the company and company is only the guarantor/ facilator there will be no impact in GST.
♦ Issue of Petrol Card / Fuel Coupon to employees:
If Petrol card / fuel coupon is given for filling up petrol & diesel in the car either owned by company / employee, it is generally for the official use and necessary instruction should be made in the employee handbook that such petrol should be used only for official purpose. If used for personal, it will be considered as gift, which will be counted towards overall ceiling of Rs. 50,000/- but even if it cross Rs. 50,000/- for diesel / petrol, no GST will be payable, since petrol / diesel is out of the purview of GST.
♦ Reimbursement of Expenses incurred for the purpose of official use
When the reimbursement is supported by Invoice which is in the name of the company or otherwise, it will be considered as that “Employee acted on behalf of the company” then it will be subjected as “Inward Supply” and if RCM is applicable it will be charged.
Any expenses paid from the corporate card it will be considered as services availed by the company as Inward Supplies and accordingly credit will be available. If RCM is applicable it will be paid. If corporate is used for personal purpose for which recovery is made will not be subjected to GST.
Any reimbursement without supporting but duly approved by competent authority of the company, it will not be treated as supply (because it is not in furtherance of the business of the company) nor Gift (as the reimbursement is as per the contractual agreement) nor it is termed as in the course of employment therefore there will not be any GST on such expenses. This is line with the principal laid down in Press Release issued by Government on Reverse Charge.
When the amount is claimed is in excess of policy entitlement or amount is restricted to the extent of the policy amount then it will not be subjected to GST. It will term as allowance and not taxable.
Each company will have different heads but principle philosophy will remain the same as mentioned in below table :
| Included in Taxable salary under the head of salary and reflected in Form 16 | It is in the course of employment and hence neither it is goods nor the service. |
| Gift | If exceeds Rs. 50000/- per employee per year then outward supply. Valuation will be at open market value and rate will be @18%.
1) If Exceeds Rs. 50,000/- then Invoice to be raised. 2) If below Rs. 50,000/-it will be treated as Non-taxable supply and ITC reversal to be done. Cumulative Control Sheet to be maintained for every employee as to evidence it is not exceeding Rs.50,000/- amount in excess of Rs.50,000 will be taxable as gift to employee. In case of absence of a control sheet, it will be taxable. |
| Any other payment, which is not covered above | It needs to be analyze and decide on case to case basis. |
HR Department needs to appreciate the legal requirement and frame the HR policy which is in the legal framework of labour law as well as GST Law.
Author Bio
Hi Ashok,
Thanks for sharing valuable information!! Well explain Human Resources Practices. Thanks again!!