Perquisites to employees may attract GST.

In GST the taxable event will be the supply of goods and services. Supply of goods and services shall be taxable even if it is made without consideration to a related party. However the same would not be taxable if it is made to an unrelated party.

1. GST on supply of goods and services 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.

Also, input tax credit (taxes paid on inputs or procurements that can be set off against the tax liability) will not be available on supply of various facilities to employees, including life and health insurance.

However, an exception has been carved out in the GST Bill. Schedule 1 provides that 'gifts' not exceeding certain 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, 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 us 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?

However, some believe that 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.

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. Based on past judicial decisions, it can be argued that levy of GST would apply only if it is the proprietor himself who has put a business asset to use for personal purposes.

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. Input tax credit will also not be available as regards the cost of travel benefit extended to employees on vacation.

GST has widened the definition of input goods or services to mean any goods or services used in the course of furtherance of business. Thus, in the absence of this restrictive clause, an employer could have set off the GST incurred on providing free lunch at the cafeteria, against his other GST liability. Perhaps, owing to this wide definition, the government has sought to deny the input tax credit in certain cases.

For now, we are waiting to see which facilities get notified for which they could then claim an input tax credit. Input tax credit is the credit available for taxes paid on inputs (procurements) which can be set off against the tax liability.