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Employer and Employee relationship in GST regime: New Goods and Services Tax Law is trying to create new perception of taxing principals and eliminating the limitations of existing laws, with the help of robust Information Technology system. There are different point of view about the services provided by employee to the employer.

According to section 9(3)(a) of the CGST Act, 2017 any person who provides services as an employee to his employer in the course of or in relation to his employment, or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and employer’s liability, shall not be considered as a taxable person. Reimbursement from employee by the employer is a taxable event in the GST regime. It is the supply of goods and services to the related party, that terms includes ’employee’ also, without consideration when reimbursement made in the course of furtherance of  the business is taxable in GST.


There are two ways of supply first from the employee to the employer and second from employer to employees. In first type of supply from the employee to the employer the same would not be treated as supply provided the same is in the course of or in relation to the employment. The second type of supplies from the employer to the employee like free foods facility, guest room facilities etc, all these will be considered as a supply even if they are made without consideration.

So the question is whether the provision of a certain facilities is the supply of goods and service or is it the provision of benefit to employees arising out of an employment contractual obligation,

Analyse of the principal in a broader way for the transaction between employer and employee would liable to GST or Not. :

  • Any facility which is common to all employees and there is no identified employee or customer i.e. free tea/coffee etc. in office premises, should not be cover under GST.
  • Any facility provided for official usage by employee in the normal course of employment, i.e. office laptop, parking etc. should not cover under GST.
  • Reimbursement to employee – i.e. telephone bill, travel expenses, hotel bills, these are not a supply by employer to employee and hence, should not be charged GST.
  • Any other supplies by employer which is not in normal course of employment needs to be analysed on case to case basis to be fixed applicability of GST.

Analyses of Transactions between employee and employers

Reimbursement

SR.NO.TRANSACTION TYPEOBERVATION
India Tax Guide
1Bonus paid to New EmployeeNo GST - As the payment would be in the nature of contractual obligation and in relation to the employment.
2Incentives or performance bonus to employeeNo GST - In many cases, the employees get incentives or performance Bonus as these are paid to employees, in relation to their employment
3Providing subsidized food or free food by the employerNo GST - Company provides free or subsidized free food to its employees or arranges catering services for Diwali/Mary Christmas/Holi etc, - No GST liability on the company.
4Sponsorship and training related expenses No GST - Since these payments are made in relation to the employment, no tax is leviable under GST.
5Payment of Club or Gym Fees No GST - Company provides free club or gym facility without any consideration from employees. No GST liability (provided appropriate GST was paid when procured by the employer) as such benefits are provided by company to all employees as a common facility and there is no such identified employee to whom supply is made.
6Part and Parcle of the CTC like, Mediclaim and personal accident policy for employee and familyNo GST - (1) No supply by company to its employees. (2) No recovery of medical insurance premium from employees. (3) Service provider is Insurance Company and recipient is employees, not employer. The outcome is 'No GST' on reimbursements which are part of CTC to employee by employer.
7Uniforms, shoes etc provided by the employerNo GST - Manufacturing Companies are providing uniforms, shoes, soaps, etc. to workers for safety and discipline purpose in the normal course of employment.
8Provision of subsidized or free Cab facilityIf it is covered under employment contractual obligation then No GST liability on company. But if it is not under employment contractual obligation, GST liability arises as this transaction would be treated as supply by employer to employee.
9Cash bonus for referral as per company policyNo GST - Cash bonus is given by the company is for referral service provided by the employee in the normal course of employment.
10Company's Guest House usages by employee for personal purposeCompany's guest houses to be used by their employees for personal purposes, this facility cannot be treated as being related to the employment , as the employees' families would also be allowed to use the guest house. The Employer would be liable to pay tax under GST and the valuation could be based on the actual costs incurred by the employer.
11Company pay Sitting fee to non-executive Directors of the companyGST applicable under RCM - Payments made to executive Directors would be exempt from the levy of tax under GST.
12Recoveries made by the employer towards parking fee, etc These payments would be subject to levy of tax under GST and these payments cannot be treated as being related to the employment. The employer would be liable to pay tax as this cannot be treated as being in relation to employment. No GST - If this facility provided for official usage by employee in the normal course of employment and no consideration recovered from employees.
13Notice pay recovery by employer As per our view No GST applicable as this recovery from employee is as per the contract between the employee and the employer, and in the course of the employment. Even though this issue is a matter of litigation.
14Payments under ESOP No GST - As these transactions covered by the employment contracts, apart from being financial transactions.
15Staff Welfare Scheme - Offsite Camping, party etc.No GST - Company provide some staff welfare scheme like staff training program, offsite camping, organize party etc for recreational activities. No GST liability as there is no supply per se by company to its employees and it is in relation to employment.
16Employee's transfer related payments - Movers and Packers
No GST - As these are to be treated as in relation to the employment.
17Free accommodation to employeeNo GST - As free accommodation is provided as part of the employment contract.
18Long Service awards to employeeNo GST - Since these are to be treated in relation to employment. it is common for companies to pay specified amounts to employees who have completed specified years of service.
19Reimbursement of Mobile Telephone Bill use for official purposeNo GST - As there is no underlying supply per se company to its employee.
20Recovery from employee for loss of company assets like, ID card/Calculator and other assetsNo GST - As such type of recovery is treated as “Recovery of Liquidated Damages”.
21Car on lease schemeThe Company has purchased Cars on Lease scheme and given to an employee for official or business purpose. No GST liability as Car is a asset of the company and such benefit is extended to the employee for the official purpose.
22Loans provided to employee without interest.No GST - Some Corporate house provides interest free loans to employees to pursue specific higher education courses or attend specified training sessions or for meeting personal exigencies. Since these are financial transactions (with no `supply' involved), tax is not leviable under GST.
23Resale of used assets like laptop, desktop, furniture etc, to employeeYes, GST liability is arise as such transactions are treated as supply of goods.

Misc. reimbursements  not covered in above table:

1.Gift & perquisites to employees: Many companies provides gift such as Cars, memento, stationary, trophy, cloths, house-hold items on auspicious occasion like Diwali, farewell etc. 

Provision of Schedule-I (Section7) of CGST Act 2017 that gifts and perquisites supplied by companies to their employees up to 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 has not been defined in the GST law. In common, gift is made without consideration, is voluntary in nature and is made occasionally.

Example 1 : Suppose, a single gift (i.e. Gold Bar) given during  the Financial Year 2017-18 Rs. 75,000/- to the employee. In this case Gift amount is exceeds   specified limit of Rs. 50,000/- per year per employee, so GST to be paid on Rs. 75000/-.

Example 2 : In case Individual gifts given during  the Financial Year 2017-18 Rs. 60,000/- to the employee. In this case Individual gifts amount is exceeds specified limit of Rs. 50,000/- per year per employee, so GST to be paid on Rs. 10,000/-.

2.Some expenditure reimbursed by the employer to the employee for business purpose: Such expenditure made by the employee for the business purpose like stationary, tea/coffee/breakfast etc from unregistered dealer, GST law will be attract under RCM , except the value of  purchases made from all unregistered dealer up to Rs. 5000/- per day.

Input Tax Credit on employee reimbursements:  According to section 17(5) of the CGST Act, lists out credit block for some services like free or subsidized food and beverages, free club or fitness center membership, free cab, group life and health insurance facility etc.

We hope that some of your doubts about the transaction between the employer and employee from  GST point of view is cleared. If you have any query about the above subject please post your query on our comment tab.

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6 thoughts on “Analysis : GST on recovery by employer from employee

  1. Mamata Talekar says:

    Very Nice article sir
    Transaction wise explanation was required by us, but there are some transactions are still not clear – like Gratuity paid by the employer on employee’s retirement
    we want more clarification on this.

  2. Samir shah says:

    Dear sir\ madam

    Providing subsidies food is taxable and have to pay GST on recovery amount as the same would be covered under GST act as supply even though there is no profit motive to provide facility of food to employee at concessional rates there is supply as the same cover under supply definition under 7 (1)(a) of GST act 2017 also employer cover under definition of supplier in (105) of section 2 and recovery amount to be considered under section 2(31) of GST act than how can we treat The same under No gst supply

  3. Siddhant says:

    Dear Sir,
    PLEASE TELL ME WHTHER GST TO BE LEVIED BY EMPLOYER ON EMPLOYEE FOR NOTICE PAY RECOVERY?

    PLS REPLY…URGENT. THE FOLLOWING LINES ARE STATED BY EMPLOYER(FOR GST APPLICABILITY).BUT I DOUBT ABOUT THIS.

    “Please note that though the services by an employee to the employer in the course of or in relation to his employment is outside the purview of GST but the transaction of notice pay recovery is not in the nature of services provided by employee to employer in the course of his employment. because my salary was non taxable.

    that time was i left the company i was have 67PL and 40 days short notice. but company pay to me 50 Pl value arround 130000 and 40 days deduction was 23000+CGST/IGST charge on that.

    i was asked below question from our company. Please suggest me
    Q1. Why are you paid amount of 50 PL instead of 67 PL. –

    replied by Company:-As per leave carry forward policy maximum 50 PLs get encashed/carry forward & rest gets lapsed.

    i asked again:- I had left the company before carry forward /lapses PL as per cycle period (befor 31st Mar’2018).So this is not applicable. and why are you not deduction short note period days from my 67 Pl.?? than you calculate on basic pay.

    Q2. 40 day’s Deduction Value is 22090.32 And 67 or 50 days PL Value is 13834?? How can possible –
    replied by Company:- Leave encashment is on basic pay & short notice recovery is done on gross salary as per company’s policy

    Q3. Why are you charged CGST/SGST on deduction value Rs.22090.32/- as per GST ruels is Not applicable,

    replied by Company – this is as per GST law & norms.

    1. Asutosh Rane says:

      Dear Siddhant

      Company can’t Charges GST on notice pay as – This recovery from employee is as per the contract between the employee and the employer, and in the course of the employment.
      So, you may appeal to Company for refund of GST

      1. vrushali says:

        what if the company refuses to release without receiving the GST amount.

  4. Arihant jindal says:

    Hi Sir

    My company has a policy where they reimburse half of the mobile handset price. I purchased a phone of 30k and the company reimbursed 15k. As per policy if you are leaving company in an year of this benefit you are liable to pay 50 percent of what you received. So my company deducted 7500 from my last month salary on my leaving the company. But they also deducted additional 1350 rupee under 18 percent GST on 7500. Is this as per law? Please guide here. Thanks in advance.

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