GST and its impact on Salaried Employees - Detailed Analysis
GST and its impact on Salaried Employees. Impact Assessment on Transactions Between Employer - Employee. Supply by Employee to Employer with all details.||GST and its impact on Salaried Employees. Impact Assessment on Transactions Between Employer - Employee. Supply by Employee to Employer with all details.||GST and its impact on Salaried Employees. Impact Assessment on Transactions Between Employer - Employee. Supply by Employee to Employer with all details.||GST and its impact on Salaried Employees. Impact Assessment on Transactions Between Employer - Employee. Supply by Employee to Employer with all details.||GST and its impact on Salaried Employees. Impact Assessment on Transactions Between Employer - Employee. Supply by Employee to Employer with all details.||GST and its impact on Salaried Employees. Impact Assessment on Transactions Between Employer - Employee. Supply by Employee to Employer with all details.||GST and its impact on Salaried Employees. Impact Assessment on Transactions Between Employer - Employee. Supply by Employee to Employer with all details.
GST and its impact on Salaried EmployeesSEGMENT I: IMPACT ASSESSMENT ON TRANSACTIONS BETWEEN EMPLOYER- EMPLOYEE
(A) Supply by Employee to EmployerSection 7 of Central Goods and Services Tax Act 2017 provides that “supply” includes-
- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
- (b) import of services for a consideration whether or not in the course or furtherance of business;
- (c) the activities specified in Schedule I, made or agreed to be made without a consideration; and
- (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
- (a) activities or transactions specified in Schedule III; or
- (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council,
(B) Supply by Employer to Employee
B1. Gifts to employeesSchedule I of the CSGT Act, 217 talks about Activities to be treated as supply even if made without consideration Second proviso to Clause 2 of Schedule I provides that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both
B2. Other Facilities to employees - Employee Benefits
(A) Exempted Employee Benefits:
- There is a specific exemption provided for services by way of renting of residential dwellings for use as residence, as per the May 19, 2017 issued Service Tax Exemptions as decided by GST Council. Hence the said services should not be liable to GST.
- Some Companies also offer house lease facility wherein Company pays rent, security deposit, brokerage, etc. to the owner and recovers rent paid from employees through payroll deduction. There will arise no GST liability for the aforementioned exemption.
- Also, it is noteworthy that where some Companies provide temporary accommodation to its employees for few weeks of joining, the same is not subject to GST as such benefit is extended by Company for official use
- Where, the asset such as mobile, laptop etc are provided for official use (whereby ownership, contract, etc is with the Company) and the said asset is surrendered by the employee on the cessation of employment, the same will not be treated as supply. Hence, such transaction should not be liable to GST
- Companies often provide car for use to the senior management and top officials. Since such cars are owned by the Company, the same will not be treated as supply. Hence, such transaction should not be liable to GST. It is noteworthy that the credit of GST paid on purchase of such cars will not be available to the Company.
- Free meals/ tea/ coffee etc which are provided to all employees at large and not to identified employee/ customer are not be liable to GST.
- With the Maternity Benefit (Amendment Act) 2017 getting notified in the Official Gazette on March 28, 2017, it will soon be a mandate for establishments with 50 or more employees to have facility of crèche being provided. No GST liability would arise on such facility provided by the employer. The Company, could however claim input tax credit on the goods/ services so consumed in maintaining the crèche facility.
- Many corporates organise offsite visits /excursions for employees. No GST liability would arise on such event as there is no supply per se. The Company, could however claim input tax credit on the goods/ services so consumed (except provisions of Section 17(5) where specifically input tax credit has been prohibited).
- Corporates often provide insurance to employees without charging any premium from them. No GST liability would arise on such transaction as there is no supply. The Company would not be able to claim input tax credit on the premium so paid as the same would not be in the name of the Company and the supply of service is being made to the individual employee.
- As there is no supply of goods or services being made, there arises no question of taxability and further these are for all employees at large.
- Company sometimes recovers money from employees on account of lost ID cards, lost company laptop etc which will be treated as ‘liquidated damages’ and hence, should not qualify as supply liable to GST.
- Share allotment under ESOP shall not be subject to GST. The employees continue to be subject to perquisite tax on exercise of options into shares and capital gains as and when the sale of such shares are made.
Applicability of GST:
- Supply of servant, driver to top executives - for personal use, will be subject to chargeability of GST.
- Recovery for club services, cable services, Gym services – On the amount charged from the employee, GST would be applicable, unless the same is specifically exempted from GST.
- Supplies to employees at discount: Many companies provide employee discount for their products so purchased by the Company. Say for instance, a paint company provides 30% discount on the dealer price to its employees or a garment company provides its separate shopping card wherein the employee can avail 15% off on the purchases so made from its authorised showroom. In all such cases transactions would be classified as supply and subject to GST.
- Sale of old assets like laptop etc to employees: Such transaction to be treated as supply and accordingly, liable to GST.
- Maintenance Expenditure of Vehicle for personal use could attract GST liability.
B3. Contributions to Provident Fund etcThere is also a specific exemption for any contribution made to a pension, provident fund or social security fund and that the same shall not be treated as a supply of goods or services Service Tax Exemptions to be continued in GST as decided by GST Council release on 19 May 2017:
Segment II: Valuation for employer-employee transactionsSection 15 of the CGST Act provides for Valuation Rules. Explanation to Section 15 provides for Related Persons. (a) persons shall be deemed to be “Related persons” if..
- (i) such persons are officers or directors of one another’s businesses;
- (ii) such persons are legally recognised partners in business;
- (iii) such persons are employer and employee;
- (iv) any person directly or indirectly owns, controls or holds 25% or more of the outstanding voting stock or shares of both of them;
- (v) one of them directly or indirectly controls the other;
- (vi) both of them are directly or indirectly controlled by a third person;
- (vii) together they directly or indirectly control a third person; or they are members of the same family;
Input Tax Credit to Employers on facilities provided
- (A) further supply of such vehicles or conveyances ; or
- (B) transportation of passengers; or
- (C) imparting training on driving, flying, navigating such vehicles or conveyances;
- (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except 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 of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
- (ii) for transportation of goods;
- (iii) rent-a-cab, life insurance and health insurance except where
- (A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force;
- (iv) travel benefits extended to employees on vacation such as leave or home travel concession.
Segment III: Checklist for CorporatesCorporate houses will be required to make HR practitioners and GST Teams sit together and analyse the components of employee benefits and may recourse the following steps and procedures:
- Step 1 : List all HR activities: Prepare a list of all transactions that affect employees’ indirect cost and direct cost due to GST. (For Example – Medical claims can be an indirect cost and travel claim as direct cost).
- Step 2: Identify and Develop Vendors Compliance List – Those registered as GST suppliers and/or those who are not. Prepare declaration form for HR suppliers and vendors who are not registered stating their price quoted or invoiced will not be revised due to GST and any increase can be reported and action to be taken under Anti-Profiteering Act.
- Step 3: Develop a user friendly Business Expenses Claim Form. Employees should be instructed to provide Company’s GSTIN to vendors. Employees should be asked to discuss with Vendors to issue invoice in the name of Company in case of Travel and Hotel services consumed by them for official purpose. Big corporate houses may also come up with concept of travel portal for its employees wherein central booking may be made for all employees and losing input tax credit with unregistered vendors will not be an issue. Company should preferably provide the employees list of registered vendors for hotels and accommodation and rent a cab etc.