The Finance Ministry clarified in a press release that gifts from an employer to an employee worth Rs. 50,000 in a year will not be taxed under the Goods & Services Tax (GST). The clarification comes as gifts and perquisites have been brought in inside the ambit of GST.
The statement said, “It is being reported that gifts and perquisites supplied by companies to their employees will be taxed under GST. Gifts upto a value of Rs 50,000/- per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than Rs 50,000/- made without consideration are subject to GST, when made in the course or furtherance of business.”
Furthermore, the release also said what will be considered a ‘gift’, “The question arises as to what constitutes a gift. Gift has not been defined in the GST law. 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.”
Using the statement to dispel a host of other doubts about several employer-employee transactions, the ministry said that “services by an employee to the employer in the course of or in relation to his employment are outside the scope of GST (neither supply of goods or 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.”
Additionally, it stated that the exemption follows on memberships of clubs, health and fitness centres, provided the employer pays the GST on it. Saying that Input Tax Credit (ITC) Scheme under GST doesn’t allow ITC of membership of a club, health and fitness centre, it added “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. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C).”
While some tax experts said that the clarification brings much-needed lucidity to the issue, others were of the view that some ambiguity still exists. The clarification is one of many to come from the government, as the country enters into the second week of one of the most exhaustive tax overhaul exercise.