Gifts from employers to employees worth up to ₹50,000 will not attract the Goods and Services Tax, nor will perquisites enjoyed by employees as part of the employment contract, the Finance Ministry said on Monday.
“Gifts of value more than ₹50,000/- made without consideration are subject to GST, when made in the course or furtherance of business,” the ministry explained, stressing that what constitutes a gift has not been defined in the GST law.
“In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift,” the ministry said, referring to reports that GST may be levied on gifts or perks enjoyed by employees.
“This means that GST will have to paid only in exceptional situations where gifts are given on voluntary basis, such as Diwali gifts to employees and that too if the value is more than ₹50,000,” said Pratik Jain, partner and leader (indirect taxes) at PwC India, adding that the industry was worried about this aspect.
Perquisites
Since services provided by an employee to a firm do not constitute supply of goods or services, there could be no GST levied on anything provided by employers as part of the contractual agreement with the employee, it said. Services that employees enjoy free of charge such as club membership and health and fitness centre will also not be subject to GST and companies can’t claim input tax credit on such expenses. However, they must pay applicable GST on the services at the time of procurement.
“If such 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 ministry said. The same would hold true for free housing to the employees, when it is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (CTC), it explained.
While this clarification brings clarity that any supply from employer to employee which is part of the CTC (Cost to Company) will not be considered a supply, some confusion persists, said Bipin Sapra, tax partner at EY.
“Ambiguity remains on whether GST is payable if a part amount is recovered from the employee for a supply which is outside the scope of GST when provided free of charge,” Mr. Sapra said.
“It has been clarified that anything done by employer for employee in terms of employment contract will not be subject to GST. These should include benefits offered in terms of providing cars for official use, free meals, gym and such other amenities provided to employees as part of a employment contract,” said PwC’s Mr. Jain.
