Notification GST Applicability on Employer Employee Relationships, Fringe Benefits provided by employer to employee

Financial Year: 2017

GST Applicability on Employer to Employee or Employee to Employer Services

 

 

 

As per Explanation to Section 15 of CGST Act

 

For the purposes of this Act:-

 

(a)    persons shall be deemed to be “related persons” if––

 

     (i)    --------------;

      (ii)   --------------;

      (iii)   such persons are employer and employee;

      (iv)   --------------       

       (v)  --------------;

       (vi)  --------------;

       (vii)  --------------;

       (viii)  --------------;

 

So employer and Employee are related persons for the purpose of GST.

 

Employee Services to Employer

 

Question

Employee Provides services to employer in terms of his professional commitments, working as per directions of employer.

So whether GST Will be applicable on aforesaid services ??

 

Answer:-

As per definition of Supply Section 7 this is a supply as

Supply includes all forms of supply for a consideration.

And employee works for a consideration.

 

 

Test/Practical of Relation of Employer and Employee:-

 

In Employment, there is master servant relation. It is contract of service and not contract for services.

In Practice we can easily decide whether there is a employee employer relation or not,

We need to check whether TDS is deducted under section 192 (TDS on salaries) or any other section.

 

However as per Schedule 3 Clause 1

ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

 

Clause 1 

      Services by an

employee to the employer

in the course of

or in relation to his employment.

 

Therefore if services has been provided by employee to employer in the course of employment then such transaction will neither be treated as supply of goods nor supply of services.

 

 

Employer Services to Employee:-

 

As per FAQs issued  by CBI&C

 

Question:-

What kind of facilities provided by employer to employee would be liable to GST? For instance, whether club membership provided will be considered as "service"?

 

Answer:-

The compensation to employees in the form of money is not a supply. However, fringe benefits are supply of goods or services and are liable to tax if not exempted. These are transactions in furtherance of business and even if supplied without consideration, the same are deemed supply.

 

Therefore GST Would be payable on fringe benefits provided to employees even if no recovery is made on the basis of open market price of the aforesaid fringe benefit.

 

Schedule 1 of CGST ACT  (Activities to be Treated as supply even if made without consideration)

Proviso to Clause 2

Provided 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.

 

 

 

As per CBI&C Press Release dated 10/07/2017

GIFTS upto a value of Rs 50,000 per year by an employer to his employee are outside the ambit of GST. Gifts has not defined anywhere in GST law.   However as per this Press Release             Gifts are (a) Made without consideration, (b) voluntary in nature, (c) made occasionally and (d) cant be demanded as a matter of right by employee in a court of law.    It follows, therefore, that if services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer.   The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C).

 

 

Question	Answer
Canteen Facility to Employees	GST will be Applicable. Doesn’t matter amount recovered or not
Group Health Insurance and recovering part premium from employees	Jotun India P Ltd & Posco India Pune Processing Centre P Ltd In  (Both AAR- MH), it was decided that recovering part premium from employees is not a supply of insurance service and is not in course of business of applicant
Transport Facility Provided to Employees	In TATA Motors AAR-MH, It was held that no services were provided in transporting their employees. No GST is applicable on the Nominal Amounts received by employer from their employees.

 

Although a different view has been depicted by relevant Advance Ruling Authorities but as per Authors View GST will be applicable on Fringe benefits provided by employer to employee.

 

Thanks

CA Rahul Gupta