Providing clarification on taxation of gifts to employees by an employer under the Goods and Services Tax (GST) regime, the government on Monday said that gifts with value upto Rs 50,000 will not attract GST. Also, the services by an employee to the employer in the course of or in relation to his employment, neither the supply of goods or supply of services, is outside the scope of the new indirect tax regime, a finance ministry statement said.
The exemption includes services that are provided free of charge to all the employees by the employer such as free membership of clubs, health and fitness centres, provided appropriate GST was paid at the time of procurement by the employer, it said. The input tax credit (ITC) scheme under GST does not allow ITC for membership of a club, health and fitness centre. “It follows, therefore, that 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,” it said. The same would hold true for free housing as part of cost-to-company (C2C) package.
While the GST law does not define gifts, the ministry said for tax purposes gift is something that is made without consideration, is voluntary in nature and is made occasionally.
Tax analysts welcomed the clarification, saying that the exemption from GST would include benefits such as cars for official use, free meals and other similar amenities. Pratik Jain, partner and leader Indirect Taxes, PwC India 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 an employment contract. Therefore, GST will have to paid only in exceptional situation where gifts are given on voluntary basis, such as Diwali gifts to employees and that too if the value is more than Rs 50,000.”
However, some others said that there is still some ambiguity on certain issues. Bipin Sapra, Tax Partner, EY, said, “This clarification brings clarity that any supply from employer to employee which is part of the CTS will not be considered a supply. However, 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.”