Perks under GST: Exemptions up to Rs 50K per year

The Ministry of Finance has clarified that gift has not been defined under GST law. However, in common parlance, a gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee.

The Ministry of Finance has finally put an end to all speculations on Goods and Service Tax on perks for employees.

The government on Monday released an official statement which says that gifts and perquisites given by companies to their employees will be taxed under GST. However, such gifts and perquisites of value up to Rs 50,000 per year will stay outside the ambit of GST.

The statement says gifts of value more than Rs 50,000 per year made without consideration are subject to GST, when made in the course or furtherance of business.

So what constitutes a gift or a perk? The Ministry of Finance has clarified that gift has not been defined under GST law. However, in common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift.

The services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods nor supply of services). It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST.

Further, the input tax credit (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer.

Even for free housing to the employees, and the same being mentioned in terms of the contract between the employer and employee and a part and parcel of the cost-to-company (C2C), the GST will not be applicable.

This implies that while free housing, and other facilities such as cars for official use, free meals, gym and such other amenities provided to employees as part of  the employment contract, will not be taxable under GST, the Diwali bonus which is voluntary, will come under GST if the same crosses the Rs 50,000 figure.