CBIC Circular says: Employee perks won’t attract GST

The Central Board of Indirect Taxes and Customs (CBIC) issued a new CGST Circular on 6th July 2022, clarifying the treatment of various scenarios under the GST law. One of the critical matters was the taxation of perquisites that an employer gives to its employees as per a contractual agreement.

No GST applies on such perks where there is a contract in place for employment, and such perquisites are mentioned. The Circular explains that this is also in line with the Schedule III of the CGST Act. It says that any services by an employee to the employer during employment are out of the scope of GST.

The same Circular No. 172/04/2022-GST further clarifies the interpretation of certain items under Section 17(5) of the CGST Act. First of all, the proviso given under clause (b) of Section 17(5) keeping obligatory supplies by the employer to employees eligible for input tax credit claims applies to the entire clause (b). In other words, the three items listed under clause (b) are ineligible for tax credit claims except where it is to be provided by the employer to employees as per any law or rule in force. 

Hence, the input tax credit is available to the employer if such employer expends on food, outdoor catering, beauty treatment, health services, leasing or renting of passenger cabs or aircraft, life or health insurance policies, club membership, home travel concession, or leave travel benefits in compliance with law or rules provided to employees. 

Any free beverages, journal subscriptions, canteen facilities, free parking space, and group medical insurance given to employees as per contract will not attract GST. It is not an exhaustive list. Hence, any such perks transacted between the employer and employee will not attract GST if given under the employment agreement. 

Earlier, many experts opined that employers and employees are related parties. Accordingly, there were views that the prerequisite underemployment should also attract GST on the fair market value. The clarification brings the matter to a conclusion. It is imperative to note that the contractual agreement for employment would include HR policies as well.

The CBIC issued seven Central Tax Circulars on 6th July 2022 to clarify various matters discussed in the 47th GST Council meeting held on 28th and 29th July 2022. 

For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@clear.in