The Goods and Services Tax (GST) laws have tried to address several ambiguities that prevailed under earlier tax laws leading to unnecessary litigation. One such provision which has been penned down differently in GST is services flowing from employer to the employee. Overall, GST is being seen as a very positive move by the government. However, at the same time, the new GST rules may prove to be a dampener for the relationship between the employer and the employee.
Supply of goods from employer to employee
The introduction of GST on the supply of goods and services flowing from the employer to the employee, other than gifts not exceeding Rs 50,000 in value, may compel employers to take a fresh look at the structure of employee remuneration and benefits outside the wage contract. The GST law clearly states that GST would be payable if there is a supply of free goods or services to an employee exceeding the sum of Rs 50,000, also if an employee avails the assets of the company for personal use, it would trigger GST.
Tax on services by employers
Employers generally provide certain facilities such as cafeteria, company vehicle, leave travel, gym, club membership, etc., free of charge and in arranging these supplies, employers are not permitted to avail input tax credit. Bringing in tax liability on such supply of goods and services without the facility of input tax credit is basically unfair and goes against fundamental VAT principles. GST inter-alia as a new “employee tax”, albeit not on salary and wages but on the non-salary receipts of goods and services from employers may force the latter to reduce the value of such facilities or recover the tax cost from the employees. If the GST is recovered from employees, the government could cushion the tax blow by permitting GST rebate in the computation of income tax liability of such employees.
Reworking salary packages
Another issue is that the term “gift” has not been defined in GST. The only relief in this regard is that input tax credit will not be denied in cases of services to be notified by the government, these will be where the employer is obligated under any law to provide the same to its employees.
The question that remains unanswered is whether provision of a certain facility like share cab used for dropping the employees back home or lunch provided at subsidised rate in the cafeteria or coffee provided during office hours is a ‘supply of goods and services’ or is it a provision of a benefit to employees arising out of an employment contractual obligation. Provision of these benefits are obligations of the employer arising out of the employment arrangement, these should remain out of the purview of GST. However, Indian employers would have to be cautious while drawing up CTC packages of its employees to include benefits that are incidental to employment.
The author is partner, Nangia & Co