By | Garima Sharma
The research team at GreenThumbs, one of the best HR firms in India, carried out a study on how the Goods and Services Tax would function in India and laid down the 6 broad ways GST may Impact ones salary & employee benefits. While everyone is trying to understand what will become cheaper or more expensive after GST, another area may undergo a lot of change in the time to come – the Employee Benefits. GST reform may affect how an employment contract will be re-structured and how employers will provide various benefits to employees that they currently do for employee engagement.
While the employees will need to be vigilant on how GST will impact their emoluments and perks, the HR professionals in India may need to revisit components of the CTC (Cost-to-company) structure to avoid any unintended GST liability and obligations. It is important that businesses review all the benefits they currently provide or plan to provide to their employees in future. Some of the major impact areas may be as follows:
1. GST may apply on amenities provided to employees outside their CTC (cost-to-company)2. Gifts exempt upto Rs 50,000 in a financial year for each employee.3. Laptop/ Mobile provided by employer – Clarity required on whether these will also be covered within ambit of Gifts?4. Company’s asset used for personal use likely to attract GST, like Company-leased Car.5. Input Tax Credit may not be available on supply of several facilities6. Company HR may need to revisit employment contracts
If an employee receives perquisites, like free goods and services from his employer beyond the stipulated agreed CTC, GST shall apply on such benefits. If an employee uses company’s asset for personal use, it may attract GST. While CTC structure can vary across companies and may be different for various categories of employees, however, general benefits, like free meals, car drops, and other such services may fall under GST purview.
Input Tax credit (ITC) may not be available on supply of several facilities such as life and health insurance to employees or that on free and subsidized food and beverages that employer make available at workplace such as tea, coffee etc. Cab facilities, club and fitness memberships etc. Only those services which an employer is mandated to provide under law to employees, as notified by government, may not be denied input tax credit.
GST Law cites an exception for gifts given by an employer to an employee. The Law specifies that where the value of gift in a financial year does not exceed Rs 50,000 per employee, such gift shall not attract GST.
Employee Benefits that may be impacted by GST
Employee benefits include any goods or services (any right, privilege, service or facility) provided free of charge to employees.
Examples of such free goods and services could include:
- Laptop , Mobile phones
- Food and Meal Vouchers
- Tea, coffee and beverages etc.
- Transport – Company bus or cab pick & drop
- Retirement gifts, Long service gifts, etc
- Prizes at annual functions etc.
- Insurance – Life, Health etc
- Club and fitness memberships
- Employee Engagement Benefits given by a third party on behalf of the employer to the employee
In short, supply of goods and services when made in the course of business for furtherance of business objective, which is not a consideration towards any employee may be taxable under GST. The term gift has not been defined in the GST law and as the law has just come in force, clarity is required in this context and exact details of compliance obligations etc; else it can lead to disputes between the trade and industry.