The government on Monday clarified that a gift worth up to Rs 50,000 presented to an employee by an employer without any consideration will not attract the goods and services tax (GST). Additionally, free membership of clubs, health and fitness centres are also outside the GST purview. It is pertinent to point out that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services), the government said in a statement. Similarly, free housing to the employees will also be exempt from the GST if it is provided in terms of the contract between the employer and employee and is part of the cost-to-company (C2C). “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. 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,” Bipin Sapra, tax partner, EY, said.
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. However, the input tax credit scheme under GST does not allow ITC of membership of a club, health and fitness centre. Therefore, 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 government said.
“It is a welcome clarification which puts many issues to rest, which industry was worried about. 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,” Pratik Jain, partner and leader indirect taxes, PwC India.
Rental income beyond Rs 20 lakh to attract GST
Rental income from residential property has been exempt from GST but any earning over Rs 20 lakh annually from renting or leasing for commercial purposes would attract the levy. Revenue secretary Hasmukh Adhia said if the house property is rent out for shop or office purpose, no GST will be levied up to Rs 20 lakh. “Rental income received from residential house is exempt. But if you have given your unit to commercial enterprise, then it is taxable if you are getting more than Rs 20 lakh as rent,” Adhia said at the GST Master Class.