A big piece of the reimbursement part of employees who work in the private sector might come under the taxation net as the Centre is believed to be pondering over bringing ‘indirect earning’ under GST. According to a report by India Today, the appropriate change in the GST rules may be given a nod in the next GST Council meeting.
The idea to bring reimbursements under the GST comes from a recent ruling by the Authority of Advance Rulings (AAR) on canteen charges. The AAR said that the canteen charges retrieved from an employee were subject to GST rates.
This decision may endure employers to stop charging for canteen services to save taxes, which might have an impact on the salary packages, the India Today report added. The employers would not prefer to increase the cost to the company for their employees.
AAR in a case which involved Caltech Polymers, a Kerala-based footwear company, said that the recovery of food expenses from the workers for the canteen services offered by the company would fall under the definition of ‘outward supply’ and therefore is taxable as a supply of services under Goods and Services Tax.
When asked whether the ruling will impact reimbursement component of salary, an expert told India Today that the rulings by the AAR will not bind on the GST Council as both are independent of each other. AAR works under the Finance Ministry and majorly deals with the Income Tax Department while for GST there is a separate GST council.
The expert added that the GST Council might contemplate the decisions given by the Authority of Advance Rulings while considering a revision in the GST rules. The logic behind it is simple, the reimbursements are not taxed because they are claimed after the expenditure has been made and taxes are paid. But the counter logic is that reimbursements involve earnings made indirectly and hence should be taxed.