GST on Gift & Perquisites paid to Employee


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Taxability of Gift:

Gifts upto a value of Rs 50,000/- per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than Rs 50,000/- made without consideration are subject to GST, when made in the course or furtherance of business.

Gift does not form part of the employment agreement hence:

  • Gift provided to employees above Rs.50000 will be covered under supply & therefore ITC will be available on it
  • But the gifts up to the value of Rs.50000 will be gift not falling under Entry No.2 of Schedule I, thus there will be reversal of ITC.
Point to be Noted:
  • If there is a consideration for the transaction it is not a gift
What is Gift:

Under GST: The term “gift” has not specifically defined in the GST.

Under Gift Tax Act: The definition of gift provided under Section 2(xii) of the Gift Tax Act which defines as under:

“Gift” means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money’s worth.

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

Input Tax Credit:

As per Section 17 (5) (h) of CGST Act, 2017 input credit shall not be available in respect to the following namely: –

“Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.”

Supply:

“Supply” under Section 7 of the CGST Act, 2017; the relevant part of the said provision reads as under:

All forms of supply of goods or services or both, such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

Hence to consider a “supply” following elements are required to be satisfied: –

  • It should be made in the course or furtherance of business
  • There should be some consideration involved
Services provided by employee to employer:

Employer and employee shall be deemed to be related person under GST. Hence, services provided 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).

It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST.

As per the Press released by CBIC any perquisite forming part of the employment agreement, i., e included in the CTC of employee shall not be considered as supply.

Read the full text of Press Release

PRESS RELEASE

It is being reported that gifts and perquisites supplied by companies to their employees will be taxed in GST. Gifts upto a value of Rs 50,000/- per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than Rs 50,000/- made without consideration are subject to GST, when made in the course or furtherance of business.

The question arises as to what constitutes a gift. 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.

Another issue is the taxation of perquisites. It is pertinent to point out here 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). It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST. Further, the input tax credit (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (ii)]. 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. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C).

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