ANALYSIS OF GST ON BENEFITS RECEIVED BY EMPLOYEES FROM THE EMPLOYER

INTRODUCTION

  • The implementation of Goods and Services Tax (GST) by the employee in a Company, has an irrevocable impact on the Company as well as on the employee.
  • In the view of the GST Law, for any business deal or transaction to come under the context of GST, it has to qualify as a supply that falls under Section 7 of Central Goods and Services Tax Act, 2017, and the aforesaid supply should be in the favor of the business.
  • In the realm of Schedule III of the GST law, there are certain goods and services which cannot be considered as supply.
  • There are specific dimensions and services provided by the employer to the employee when it comes to defining an employer and employee relationship.
  • The relationship of the employer and employee gets complicated under Entry 2 in Schedule I of the CGST Act. There would be taxability on the goods and services which are supplied without the consideration of the people involved, during the business.

 THE SUPPLY RECEIVED BY EMPLOYEE FROM EMPLOYER

  • The GST law has not defined the term gift. So, if the employee receives a certain amount as a gift which is up to Rs. 50,000 from the employer in a financial year, it would not be considered as supply and GST would not apply to it. But if the gift is more than Rs. 50,000, GST would be applicable on that amount.
  • If there are various supplies made by the employer towards the employee with or without the knowledge of the employee, it would be considered as supply.

THE SUPPLY RECEIVED BY EMPLOYER FROM EMPLOYEE

  • In the course of employment, a gift from employee to employer would not be treated or considered as supply and GST would not apply to it.

DUTIES AND OBLIGATIONS

  • A common facility to all the employees as well as client/customers in the Company, should not be taxable under GST.
  • In the course of employment, facilities such as the use of office systems, mobile phones, laptops, iPad, etc. which are given to employees to use to increase productivity, should not be taxable under GST.
  • If the employer reimburses the employee in any situation, it should not be defined as supply and hence it would not be taxable under GST.
  • The supplies provided by the employer to the employee have to be analyzed to determine and conclude whether it is taxable under GST or not.

RULES TO BE FOLLOWED

  • When goods are supplied, the full value in money should be accepted. Price should be the only consideration between the two unknown parties who are part of the transaction.
  • In similar circumstances, the supply of goods shall take place on the basis of characteristics, quality, quantity, materials, and reputation of goods.
  • The cost of acquisition or manufacture should be 110% of the cost of provision for such services.
  • The residual method of Section 15 of Central Goods and Services Tax (CGST) and the valuation rules shall be considered.

INSURANCE AND OTHER BENEFITS

Medical Insurance for Employees and Family Members

  • Employee and their family members receive medical insurance from the Company
  • Employees are not liable to pay any charges on account of medical insurance.
  • The employee manual is an essential part of the employee contract. It covers the information on medical insurance, that the employee receives from the Company.
  • The employee is not liable to be taxable under GST for medical insurance. In the employee contract, there is no such condition to be fulfilled by the employee towards the Company regarding this transaction.
  • The company should make it specifically clear with the medical insurer that they are only making the payment on behalf of the employee. This information shall also be well stated in the employee contract and agreement as well.
  • No credit availability would be provided as the Insurance Company directly makes the supply with the employee and not with the Company.
  • Unless there is any notification or obligation under the law regarding taxes paid concerning employee health insurance, till then they are not eligible for credit.

Personal Accident Insurance

  • Employees will receive accident insurance from the Company.
  • Charges would not be levied on account of accident insurance from employees.
  • The employee is not liable to be taxable under GST for Personal accident insurance.
  • No credit availability would be provided if the Insurance Company directly makes the supply with the employee and not with the Company.
  • Unless there is any notification or obligation under the law regarding taxes paid concerning personal accident insurance, till then they are not eligible for credit.

Subsidized Facility

  • Employees are provided with a cab to travel for business free of cost from the Company.
  • If the cab facility is not covered by the Company in the employee agreement, then GST liability will arise because the transaction will be treated as supply.
  • The employee contract can be structured if the Company is willing to do so. The employee and cab service provider can be directly in contact and can raise an invoice on Company for recovery of the amount. In such a situation, the applicability of GST does not take place.

Computer System or Mobile phone, Given to Employees

  • For business purposes, the company provides the employees with a computer system or mobile phone.
  • The applicability of GST would not be there on these commodities, as Company on their own will, hand it out to the employees for business purposes.

Employees provided with Company Car

  • GST would not apply to the Company car given to employees as it is given for official purpose in the course of employment.
  • Credit is not available.

CONCLUSION

  • For the transactions to successfully happen, between the employer and employee; it is time to be more specific regarding the taxability of GST on various services. The chargeable amount should be clarified as well so that transactions can take place smoothly without any hindrance.

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