GST: Gifts worth up to Rs 50,000 by employer exempt, experts say welcome relief for industry

The government on Monday clarified that gifts worth up to Rs 50,000 by an employer to its employees as also free membership of clubs, health and fitness centres will not attract the goods and services tax (GST), which the tax experts said will come as a relief for the industry.

Also, the services by an employee to the employer in the course of or in relation to his employment is outside the scope of the new indirect tax regime, it said.

Any club, health and fitness centre membership provided by an employer to its all employees free of charge will not be subject to the GST.

Representational image. Reuters

Representational image. Reuters

The same would hold true for free housing as part of cost-to-company (C2C) package.

Commenting on reports of gifts and perquisites supplied by companies to their employees being taxed under GST, the finance ministry in a statement said gifts up to a value of Rs 50,000 in a 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 the GST, when made in the course or furtherance of business," the statement said.

While the GST law does not define gifts, the ministry said for tax purposes gift is something that 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," it said.

On the issue of taxation of perquisites, the ministry said 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," it said.

Further, the input tax credit (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre.

"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)," the statement added.

“It is a welcome clarification which puts many issues to rest, which industry was worried about," Pratik Jain, Partner and Leader Indirect Taxes, PwC India.

He said the ministry clarification means 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," he said.

Therefore, GST will have to paid only in exceptional situation where gifts are given on voluntary basis, such as Diwali gifts to employees and that too if the value is more than Rs 50,000, he said.

With inputs from PTI

Updated Date: Jul 11, 2017 08:50 AM

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