Employer and employee under GST

Employer and employee under GST


When a person enters into a contractual agreement with other person (which may be body corporate/ firm/ Individual/ etc) to perform or work as per the directions issued by the other person, the person who is performing the activities gets remuneration in consideration & it can be considered that he is in employment of the other person & this relationship is called employer employee relationship.

From the above it can be concluded that to establish employer employee relationship there should be-

1. Employers (who provide the employment & pay salary to employees).

2. Employee (who works as per the directions/instructions of the employer).

3. Contractual agreement between the employer and employee


GST taxability in case of employer employee relationship-

In Schedule III (Sec 7 CGST Act,2017) activities shall not be treated as either supply of goods or supply or services. Activities mentioned in Schedule III are out of ambit of CGST Act,2017. Entry no. 1 of Schedule III is mentioned below-

♦ Services by an employee to the employer in the course of or in relation to his employment.

The aforesaid entry of schedule III clearly specifies that any services provided by an employee to his employer in the course of or in relation to his employment is out of the ambit of GST. 

Here it is very pertinent to note that services that are only provided in the course of or in relation to his employment is to be considered as out of the purview of GST, all other services provided by an employee to his employer which are not in the course of or in relation to his employment shall not be excluded from the GST & shall be considered in the ambit of GST.

For e.g. - Mr. A who is in employment of XYZ limited (in short employer) provides HR services to the employer as per agreement & in consideration gets monthly salary of Rs 1 Lacs. So, HR services provided by Mr. A to his employer is in the course of his employment & the same is in ambit of Schedule III of GST. Hence no GST shall be applicable on this transaction.

Now Mr. A who is an employee of XYZ limited is also supplying goods to XYZ limited, now that supply of goods by Mr. A is not in relation to his employment, hence not covered by Schedule III of CGST act, 2017. So, GST shall be levied here.

From the above it can be concluded that only those transactions which are performed in the course or relation of employment is only under purview of Schedule III of CGST act,2017.

In Schedule I (Sec 7 CGST Act,2017) activities are considered as supply even if made without consideration. Entry no. 2 of Schedule I is furnished below-

Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

From the above proviso reading it can be understood that any gift provided by the employer to his employee shall be taxable under GST if the value of gift is exceeding Rs 50,000 in a financial year, however where the value of gifts is up to Rs 50,000 GST shall not be levied & transaction will remain out of ambit of Schedule I.

Now if we read schedule III in tandem with schedule I it can be clearly understood that when there is an employee employer relationship GST shall not be levied & if any gift is provided by employer to his employee & the value of gift exceeds Rs 50,000 in a financial year GST shall be applicable on the gift value, otherwise GST shall not be levied.

Now we will cover few circulars which has provided clarifications on issues related to the employer employee relationship-

Circular No. 172/04/2022-GST dated 06 July 2022-

Issue- Perquisites provided by the employer to its employee in terms of contractual agreement entered into between the employer and the employee are liable for GST.

Clarification - Perquisites provided by the employer to its employee which are in terms of contractual agreement between the employer & the employee, will not be subject to GST by the virtue of Schedule III.

Circular No. 178/10/2022-GST dated 03 August 2022-

Issue - Forfeiture of salary in the event of the employee leaving employment before the minimum agreed period.

Clarification - Notice pay recovery is not done due to tolerating an act but as penalties for dissuading the non-serious employees from taking up employment and to discourage and deter such a situation. Therefore, such forfeiture is not considered taxable under GST as consideration is not for tolerating an act or situation.

In matter of Manappuram Finance Ltd. Vs Assistant Commissioner of Central Tax and Excise (High court of Kerala) it was affirmed that notice pay recovery should not be taxed under GST. Also, it was held that Circular No. 178/10/2022-GST is binding on the department. Circular is clarificatory in nature & it is to apply retrospectively.

Thus, from the above reading it can be concluded that GST shall not be levied on services which are performed by an employee for his employer which is in the course of or in relation to his employment. Also, GST shall be applicable on any service provided outside employment by employee to employer.

Supply Taxability Remarks

Gift by employer Exempted upto Rs.50000/- per year Schedule: I

Service provided by employee to employer in relation to the employment Neither supply of goods nor services Schedule III

Using of company asset by employee for personal purpose Supply of service taxable in the hands of employer if provided without consideration Schedule I

Sale / Transfer / disposal of business assets by employer to employee with or without consideration (laptop, car, mobile, furniture) Taxable supply in the hands of employer Schedule I

Sale / Transfer / disposal of business assets by employer to employee with or without consideration on which ITC availed (laptop, car, mobile, furniture) Taxable supply in the hands of employer Schedule I read with valuation rule 28 will apply.

Employee of parent company providing service to the subsidiary or associate company Taxable service in the hands of employer As the subsidiary or associate are different company with PAN it is liable for GST

Services provided by Director to a company provided the payment made to him treated as professional charges and not salary Taxable under RCM Sec 9(3) Schedule I Circular 140/10/2020 Dt.10-6-2020)

Reimbursement of bills or allowances (TA/Conveyance/Medical/ Telephone bill / Member ship fee. Not taxable if provided as terms of employment

Comfort, convenience or welfare of the employee Not taxable This has been held by the Hon’ble Bombay high court (Nagpur bench), in its order dated 11.10.2010, in the matter of Central Excise, Nagpur Vs. M/s Manikgarh Cement [2010 (20) S.T.R.456 (Bom)].

Guest house provided by employer to employee as well non – employee Not an activity of furtherance of business, hence not taxable as well no input tax credit. Not eligible for ITC [Order No.02-03/ODISHA-AAAR/ 2018-19 Dated 21.01.2019].

Free cab Not taxable

Free Food Not taxable

Notice pay recovery Not taxable

Medical insurance, health checkup, relocation benefits, Personal accident insurance, Not taxable





Comments

Post a Comment

Popular posts from this blog

Understanding E-commerce Operators under GST

Image
Understanding E-commerce Operators under GST In the rapidly evolving world of online commerce, electronic marketplaces have become instrumental in facilitating seamless transactions between buyers and sellers. With the advent of E-commerce, governments worldwide have been adapting their tax systems to keep pace with the digital economy. In India, the GST was introduced on July 1, 2017, and it brought about significant changes for E-commerce operators.  What is an E-commerce Operator? An E-commerce operator refers to any person or entity that owns, operates, or manages a digital platform that facilitates the supply of goods or services between suppliers and customers. Popular E-commerce platforms like MDND, Amazon, Flipkart, and eBay are classic examples of E-commerce operators. These operators act as intermediaries, bringing sellers and buyers together and facilitating transactions. GST Registration of E-commerce Operator E-commerce operators are required to register under GST, reg...
Read more

GST Reconciliation

Image
GST Reconciliation GST reconciliation stands as a pivotal task for businesses across India, regardless of their scale.  This critical process involves cross-checking GST data extracted from various sources like invoices, purchase orders, and bank statements to guarantee its precision and entirety.  The intricacies of this task often make it time-consuming, particularly for enterprises dealing with high transaction volumes. However, despite its complexities, GST reconciliation remains indispensable. Compliance with GST regulations hinges on this process, crucial for evading substantial penalties.  Moreover, it enables businesses to maintain an accurate financial trail, identifying potential errors or discrepancies along the way. A Proper Explanation of GST Reconciliation GST reconciliation process serves to pinpoint errors or omissions, allowing for timely rectification. The primary objective is to ensure consistency between your recorded invoices and purchases and the dat...
Read more

Credit notes and debit notes under GST

Image
Credit notes and debit notes under GST Section 34 of the CGST Act plays a crucial role in regulating credit and debit notes in the context of goods and services. Section 34: Credit and debit note Section 34(1) of the CGST Act pertains to credit and debit notes. The extract of the section is provided below: “Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed.” According to the section 34, a supplier has the option to issue a credit note with GST (referred to as “GST credit note”...
Read more