Amenities to employees outside CTC may trigger GST liability
Dated 29th March, 2017
MUMBAI: An employer-employee relationship is something which is no longer the sole purview of the HR department. Under GST, which is set to be introduced from July 1, the taxman could also be probing into various facets of it. GST would be payable if there is a supply of free goods or services to an employee exceeding the stipulated sum, if an employee avails of a company asset for personal use (say , a car), it would trigger GST.
Also, input tax credit will not be available on supply of various facilities to employees, including life and health insurance.
TOI spoke to tax experts to decode some grey areas in some provisions in the GST bills tabled in Parliament on Tuesday .
Supply made without consideration (to employees):
The taxable event under GST is the supply of goods and services. Supply of goods or services to a related party (a term that includes employees) without consideration, when made in the course of furtherance of business, is taxable under GST.
An exception has been carved out in the GST Bill. Schedule 1 provides that `gifts' not exceeding Rs 50,000 in value in a financial year by an employer to an employee shall not be treated as supply of goods and services.
"Amenities provided to an employee, which is not part of his or her cost to company (CTC) package, could now possibly attract a GST levy," says Sachin Menon, indirect tax leader at KPMG India. While cost to company structures differ, typically, free lunch, car drops, scholarship to employee's children are not part of the CTC package, which leaves India Inc to grapple with GST complexities.
"The moot question is whether provision of a certain facility is a `supply of goods and services' or is it a provision of a benefit to employees arising out of an employment contractual obligation?" asks Sunil Gabhawalla, CA and indirect tax expert. According to him, certain benefits that are made available to employees, like a shared car for dropping employees back home or even food provided in the cafeteria should be out of the purview of this provision and not subject to GST.
The term gift has not been defined in the GST bills. Going by its dictionary meaning, a gift is something voluntary supplied without any consideration. It does not stem from any contractual obligation. Seen in this light, given that the term `gift' has been used for carving out the monetary exemption, only items incidental to employment, like an award to an employee, or Diwali gifts should come under the GST levy, if these exceed the monetary limit per employee," says Uday Pimprikar, indirect tax partner, EY India.
Use of assets:
Schedule II relates to activities to be treated as supply of goods and services. Here, clause 4(b) provides that where goods held for the purpose of the business are put to any private use, whether or not for a consideration, such usage would result in a supply of services and a GST levy .
"Going by the strict interpretation, if a company provides a car to an employee for his use (both official and private) the usage could be considered as a supply of service to the employee, which is a taxable event for GST. In such a case, the company should be given the benefit of input tax credit and proper valuation norms must exist to ensure that GST is levied fairly and not on the fair market value, but rather the cost or depreciated value of such assets, says Pimprikar.
Denial of input tax credit:
The final bill also includes a list of services for which input tax credit will not be available. Some of these are facilities extended to employees such as free or subsidised food and beverages at the workplace, sponsorship of club or FITNESS centres membership, cab facilities, group life and health insurance. The only silver lining is that input tax credit will not be denied in cases of services to be notified by the government, these will be those where the employer is obligated under any law to provide the same to its employees.