In pursuant to the 47th GST Council meeting, the GST Council has issued clarifications under Circular No. 172/04/2022-GST dated 6th July 2022 relating various Input Tax Credit (ITC) issues under GST.
In the above mentioned circular GST Council has clarified ITC-related issues in respect of various services provided by employers to its employees. The services are as follows such as canteen service, health insurance, life insurance, transportation service and concessional travel, etc. As per industry wide practice these services are provided either free of charge or at a nominal price which is further recovered from the employees.
Earlier, ITC on canteen service, health insurance, life insurance, transportation service and concessional travel etc. was disallowed as it is covered under block credit as per clause b of section 17(5) of CGST 2017.
However, the ITC on the leave or home travel concessional was only allowed if the same has been obligatory for the employer to provide under any law. ITC on any other services such as canteen service, health insurance, life insurance, transportation service was disallowed even though such services were mandatory to provide under any law in force. It was literal interpretation of law and this was never the intent of the legislation of law.
Now onwards, as the GST Council has clarified in vide Circular No. 172/04/2022-GST dated 6th July 2022 that the proviso after sub-clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the entire of clause (b) of sub-section (5) of section 17 of the CGST Act. Hence ITC would be available on canteen service, medical insurance, transportation service, and other services if the same is mandatorily to provide to an employee under any law.
Further the above mentioned circular would be applicable from the inception of GST i.e., 1st July, 2017 as it only re-iterates which was always there in law.
Hence it has been clarified through the Circular No. 172/04/2022-GST dated 6th July 2022 that ITC would be available on perquisites provide by employer such as canteen service, health insurance, life insurance, transportation service and other services only where employer is bound to provide under any statutory law for time being enforce otherwise not available.
Service supplies under the employment contract by employee to employer is covered under the definition of supply of service as per section 7 of CGST Act, 2017 as all the condition are present to be a supply. However, services provided employee to employer has been specifically remove from purview of GST as per the Schedule III to the CGST Act, 2017.
Since the services by employee to the employer in the course of or in relation to his employment will not be considered as supply of goods or services or both, hence GST would not be applicable on services rendered by employee to employer provided they are in the course of or in relation to employment otherwise chargeable to GST.
Hence any perquisites provided by the employer to its employees in terms of contractual agreement are in lieu of the services provided by employee in relation to his employment and would not be subjected to GST when the same are provided in terms of the contract between the employer and employee.
However, where any gift has been provided by an employer to its employee during any financial year and value of such gift is more than rupees fifty thousand then according to Schedule I of CGST Act 2017, GST would be payable on such gift.
Thus, any perquisites provided by the employer to its employees in respect of contractual agreement between them would not be subjected to GST this has been clarified vide Circular No. 172/04/2022-GST dated 6th July 2022. However, where the company has provided any gift to its employee, GST would be chargeable where the value of gift is exceeded rupees fifty thousand during the financial year.