GST on Employee Services

GST is applicable on the transaction made for consideration. In many cases transactions become taxable even consideration is absent, which includes transaction made between ‘Related person’

Under the GST Employees and Employers are related person accordingly service given by employee to employer is taxable under the GST.

However Schedule III of CGST act   provides that “services by employee to his employer in the course of or in relation to his employment” will not be considered as supply of goods or services and hence GST is not applicable.

Transactions which excluded from GST between employee and employer are :

  1. Supply of services by employee to employer in the course of employment
  2. Gifts by Employer to employee not exceeding Rs 50,000 in a Financial Year

There are lots of amenities, allowances, transactions done with employees Such as Hotel facilities, Vocation, Notice pay recovery, Reimbursement expenses. Would GST be applicable on them?

In a recent case Authority for Advance ruling held that ‘’Supply of food’’ items to the employees for consideration in the canteen run by the Employer would come under the definition of ‘supply’ and would be taxable under GST.

Recovery of food expenses from the employees for canteen services provided by company would come under the definition of ‘outward supply’ as defined in the Section 2(83) of the Act, 2017, and therefore, taxable as a supply of service under GST,” the authority ruled recently on a plea filed by Caltech Polymers, a Kerala-based footwear manufacturer.

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