Employees' payment for canteen services will not attract GST: AAR

GST and input tax credit applicable for company's payment to canteen service provider not recovered from employees

Deducting money from employees' salaries to pay a canteen services provider (CSP) would not attract the Goods and Services Tax (GST), the Gujarat Authority for Advance Rulings (AAR) has ruled.

In a case related to luxury kitchen and bath fixtures brand Kohler India Corporation, the AAR ruled that input tax credit (ITC) would be given to the company for GST paid on payment to a CSP for non-contractual employees.

However, ITC is restricted to the extent of the cost borne by the applicant for providing canteen services to its employees.

In terms of the Factories Act, 1948, as more than a specified number of workers are employed, it is mandatory for the company to provide canteen facilities.

To comply with this requirement, Kohler entered into a contract with a CSP to provide canteen facilities to its workers.

The employees' portion of canteen charges is collected from their salaries and paid to the CSP by the company on their behalf.

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Sandeep Sehgal, partner at a tax and consulting firm AKM Global, said the AAR has brought clarity to the eligibility of ITC for GST on canteen services obligatory under the Factories Act.