Professional Documents
Culture Documents
on Employee reimbursements
CA Gaurav Gupta
FCA, LLB, DISA P a g e |2
Contents
1. Introduction .......................................................................................... 3
9. Disclaimer .......................................................................................... 18
1. Introduction
GST has opened a series of debate on many issues in India regarding the levy
of GST. Amongst many, one of the most deliberated issues has been the levy
of GST on provision of goods or services to or by employee or reimbursements
made to employees. The foregoing guide explains the underlying facts of the
transactions, provisions of the GST law and exigibility of such amounts (paid
between employer / employee) under GST.
2. Who is an employee
It is important to note that while employee includes whole time and Managing
Directors, Independent directors are not employees of the Company. Similarly,
contractual labour would also not be categorised as employee. Persons who
As part of Schedule III of Central GST Act, 2017 (CGST Act), Services of
employee has been considered as neither supply of goods, nor supply of
services. The relevant portion of the CGST Act reads as under:
Section 7:
(2) Notwithstanding anything contained in sub-section (1),
(a) activities or transactions specified in Schedule III; or
..
shall be treated neither as a supply of goods nor a supply of services.
Schedule III
1. Services by an employee to the employer in the course of or in
relation to his employment.
of or in relation to. The two terms are not new and have been deciphered by
the Courts.
We shall now proceed to discuss the levy on the various kinds of considerations
/ reimbursements given to an employee hereunder.
4.2. Allowances
Allowances include three categories of allowances allowances forming part of
Salary, compensatory allowances, allowances for official duties. We shall
discuss each of the three categories hereunder:
Since the above allowances form part of Salary for services provided in the
course of employment, they are not exigible to GST. It is important to mention
that the above allowances forms part of Salary for the purpose of Income Tax.
b. Compensatory Allowances
Following Compensatory allowances are also not exigible to GST and have
been recognised as only a form of Salary:
- Transport Allowance is granted to an employee to meet expenditure on
commuting between place of residence and place of duty
- Special compensatory Allowance (Hilly Areas)
- Border area allowance / Tribal area allowance / Compensatory Field
Area Allowance / Compensatory Modified Area Allowance / Counter
Insurgency Allowance / Underground Allowance / High Altitude
Allowance / Highly active field area allowance / Island Duty Allowance
/ City Compensatory Allowance
- Allowance granted to an employee working in any transport business
to meet his personal expenditure during his duty performed in the
course of running of such transport from one place to another place
provided employee is not in receipt of daily allowance
- Entertainment Allowance received by the Government employees
c. Official Allowances
Certain allowances are given to employee for official expenditures and are not
taxable to the extent such expenses are made for official purpose, such as:
- Conveyance Allowance granted to meet the expenditure on
conveyance in performance of duties of an office
In above cases, the expenses are made in official capacity and the above
expenses are not for personal consumption of the employee. They are paid in
lump sum to provide flexibility to certain employees to expend money within a
particular range for business purpose so that they are not short of funds and
business in not hindered in its natural course. Thus, in above cases, employee
acts a agent of the employer for such expenditure and such allowances are
considered as business expenses and not part of the Salary to the extent such
expenses are for official purpose. Accordingly, portion of Salary which relates
to official purpose shall be considered as expenditure by employer and GST
implications should flow as if employer has made such expenses. It is
immaterial whether the invoices are in the name of the employee or employer.
However Input tax credit can only be availed when proper GSTIN of employer
is mentioned on such invoices. Also, in case of procurement of such supplies
from unregistered supplier, the liability to pay under reverse charge shall fall on
employer. Thus, it is proper to records such expenses when said to be
expended on official purpose. In other case, when such amount is not used for
official purpose and paid to employee, such amount forms part of taxable Salary
of the employee and thus, no GST shall be applicable on such amounts.
4.3. Perquisites
The following perquisites being a part of Salary are not taxable in GST not being
a Supply:
- Rent Free Accommodation
- Supply of Gas Water, Electricity etc
- Free or Concessional Educational facilities of employees family
members.
- Income Tax of Employee
- Professional Tax of employee
- Salary of servant employed by employee
- Reimbursement of Medical Expenditure
- Free meals provided during office hours
- Club Facility
- Leave Travel Concession
- Telephone / Mobile
- Medical / Recreational Facilities
- Stock options
- Education/ Training or refresher course for employees
- Car Provided by Employer for personal use of employee
While, such supplies to employee are only a form of consideration for employee
services, procurement of such supplies from any unregistered supplier would
make employer exigible for payment of GST under reverse charge. It is
important to mention that certain supplies like rent free accommodation are
exempt under GST and thus, no GST is payable under reverse charge also.
It is important to mention that even though the provision of such goods/ services
shall not constitute supply between employer and employee, however, any
payment made by employer for procurement of such supplies from a third
person would attract GST and in case such supplier is not registered, the
employer would be required to pay GST under reverse charge. For eg. Car
taken on rent from a third party and given to employee shall be exigible to GST
in the hands of employer.
There are many considerations which are given to an employee which are
beyond his term as an employee and may not fall within the ambit of in the
course of employment, but such amounts shall not be exigible to GST when
they are in relation to employment. Type of such amounts are as under:
a. Pension and other retirement benefits:
b. Earned leaves
c. Ex-gratia payments
d. Leave Travel Concessions
employee, shall
constitute supply
9. Disclaimer
Due care and diligence have been taken while editing and publishing of this
Guide. The author does not hold any responsibility for any mistake that may
have inadvertently crept in. The author shall not be liable for any direct,
consequential, or incidental damages arising out of the use of this Guide.
In certain parts of the Guide, the views expressed are personal views of the
author and are no authority in law. To avoid any doubt, readers are
suggested to cross check the contents with original government
publications.
This Guide is solely for the information purpose. The Guide may not be
used for any other purpose, or distributed to any other party, without prior
written consent.
Gaurav Gupta
All rights reserved
CA Gaurav Gupta
B.Com (Hons.), FCA, LLB, DISA
Partner
MGS & Co.
LD-65, Pitampura, Delhi 110034
Ph: +91 11 4571 8819, +91 98110 13940