Perquisites by employer to employees – on contractual agreement

 

Perquisites by employer to employees – on contractual agreement


CGST Circular No. 172/04/2022-GST on 6th July 2022

One of the critical matters was the taxation of perquisites that an employer gives to its employees as per a contractual agreement.

·       No GST applies on such perks where there is a contract in place for employment, and such perquisites are mentioned.

·       The Circular explains that this is also in line with the Schedule III of the CGST Act.

·       It says that any services by an employee to the employer during employment are out of the scope of GST.

The same Circular further clarifies the interpretation of certain items under Section 17(5) of the CGST Act. First of all, the proviso given under clause (b) of Section 17(5) keeping obligatory supplies by the employer to employees eligible for input tax credit claims applies to the entire clause (b). (Foods & beverages, outdoor catering, beauty treatment, health insurance, cosmetic & plastic surgery.)

In other words, the items listed under clause (b) are ineligible for tax credit claims except where it is to be provided by the employer to employees as per any law or rule in force. 

Hence, the input tax credit is available to the employer if such employer expends on food, outdoor catering, beauty treatment, health services, leasing or renting of passenger cabs or aircraft, life or health insurance policies, club membership, home travel concession, or leave travel benefits in compliance with law or rules provided to employees. 

Any free beverages, journal subscriptions, canteen facilities, free parking space, and group medical insurance given to employees as per contract will not attract GST.

It is not an exhaustive list. Hence, any such perks transacted between the employer and employee will not attract GST if given under the employment agreement. 

Earlier, many experts opined those employers and employee are related parties. Accordingly, there were views that the prerequisite underemployment should also attract GST on the fair market value.

The clarification brings the matter to a conclusion. It is imperative to note that the contractual agreement for employment would include HR policies as well.

 


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