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

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