GST could eat your 'free' lunch: Perks, gifts may be taxed under regime

All free amenities provided to an employee outside his or her CTC may attract GST

The Goods and Services Tax (GST) may have a lesser known impact on you — your free office luncheons, among other things, may no longer be exactly free, that is to say that they will attract tax. In fact, it could even lead to an increase in your income tax burden. 

Online human resource industry portal, peoplematters.in, reported in March that all free amenities provided to an employee outside his or her CTC, or cost to company (total salary given to an employee), would attract GST. 

Also, the report said that GST would be applicable if an employee uses the company’s assets for personal use. 

According to the report, given that CTC structures vary from firm to firm, services ranging from scholarships for an employee’ children to even pick-and-drop service will fall under the GST's ambit. 

It does not end there, the report added that input tax credit would not be available for facilities like life and health insurance provided to employees. In fact, club and fitness membership, cab facility, free or subsidised lunches, among other things, are some of the facilities a company will not be able to claim input tax credit on. Input tax credit will only be available for those services or amenities that a company has to provide to its employees under the law and as notified by the government. 

Here are the relevant sections:

SCHEDULE I [Section 7] Activities to be treated as supply even if made without consideration 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

SCHEDULE II [Section 7] ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES 4. Transfer of business assets - Clause (b) - where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services;

The GST rate applicable on perquisites beyond those mentioned in the employment contract for senior executives and gift items worth over Rs 50,000 could fall between 18 per cent to 43 per cent, the Economic Times reported on Thursday. 

The financial daily added that input tax credit can be claimed by the concerned company for such intra-company transactions. 

Citing an unnamed finance ministry official, the report said that a gift from an employer to his or her employee will come under the ambit of GST.

To avoid the issue, the report said that firms could start including such perks in the employment contract itself. This would, of course, mean higher income tax for the employee. 

"In case these perks become part of the job contract, they would attract additional income tax and employees would have to bear the cost," said MS Mani, senior director, Deloitte Haskins & Sells LLP.