Gifts of more than Rs 50,000 in value will attract GST, the Ministry of Finance said on Monday in a series of tweets, raising a flag on a widespread business practice of giving expensive gifts by companies to promote business or to compensate employees in various ways other than their regular remuneration to evade falling into the tax net.
“Gifts of value more than Rs 50,000 made without consideration are subject to GST, when made in course or furtherance of business,” the Ministry of Finance tweeted. However, it also tweeted: “Services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST.”
Earlier this month, on July 1, Prime Minister Narendra Modi implemented GST in India’s biggest tax reform since independence, unifying the entire country into one single market with just one indirect tax subsuming over 17 different Centre and state levies on various products and services.
Finance Ministry further said on Monday that the compensation received by employees from their employers in the course of their service is not under the ambit of GST, to the extent of what has been provided for in the contractual agreement between the both. This exemption extends to even the housing provided by the employers to the employees, if the same is the part of their CTC (cost-to-company), it said.
Further, the Input Tax Credit (ITC) 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 move is apparently aimed to check the tax avoidance in cases of employees being compensated in ways other than their agreed upon remuneration to save tax at both, the hands of the employer and employees.
Tax experts, however, say that it is still not clear whether GST is payable if a part amount is recovered from the employee. Bipin Sapra, Tax Partner, EY, said, “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.”