NEW DELHI: A wide range of benefits such as free beverages, canteen facilities, free parking space, journal subscriptions or even group medical insurance provided by business entities to its employees in terms of a contractual agreement between the two, will not be subject to Goods and Services Tax (GST).
This circular on the ‘taxability of perquisites’ to employees, has been issued by the Central Board of Indirect Taxes and Customs (CBIC) in response to clarifications sought from its field officials, in order to ensure uniform implementation of the law.
“There was a view in some quarters, that since employer and employee constitute related parties any perquisite provided by the former to the latter should attract GST on the fair market value. This apprehension has been put to rest by the clarification,” says Sunil Gabhawalla, founder of a CA firm.
Earlier, in 2017, a press note issued by the CBIC was on the same lines, but a formal circular gives it more heft, view tax experts. Abhishek Jain, indirect tax partner at KPMG India, states that while the term ‘contractual agreement’ has been used in the circular, it could have wide application and cover HR policies in general.
To illustrate, free food provided to all employees, which doesn’t form part of an employment contract, but is a general corporate policy, can also be argued to be covered and as such not be subject to GST.
Many companies have sought advance rulings on whether a nominal sum recovered from employees, for say transport facilities or canteen facilities, which is passed on to the third-party provider will be subject to GST.
Tax experts are of the view that the same should also ideally not attract GST levy, but a specific clarification would be helpful.