HP AAR: Employers Cannot Claim GST ITC on Transport Services

The Himachal Pradesh Authority for Advance Ruling (AAR) rules that the employer cannot claim Goods and Service Tax (GST) Input Tax Credit (ITC) paid on the transportation services of the employees if it is not obligatory under any law.

Provision of transport services by employers is one of the significant benefits for employees, especially for women employees and employees working in uneven shifts. However, the restriction of obligatory under law imposed by section 17(5)(b) under CGST Act and now confirmed by AAR, might demotivate employers for providing voluntary transportation (i.e. not required under any law) to its employees.

The applicant M/s Prasar Bharathi Broadcasting Corporation of India is a registered taxpayer and has agreed to hire licensed commercial vehicles for transportation of its women employees, physically challenged and regular employees.

The applicant raised a question of whether the entity is eligible for availing GST ITC paid to the contractor on the services rendered to the applicant. Also, the entity wants the authority to clarify the GST rate applicable to the service mentioned above.

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Section 16 of the CGST Act, 2017 states that the taxpayer can claim ITC on the supplies which are used or intended to be used for business. However, there are exceptions prescribed under Section 17(5) of the CGST Act 2017 for availing ITC, and the exception covers the concerned issue.

Section 17(5)(b) states that ITC is available on the condition that goods or services are obligatory for an employer to provide under any law for the time being in force. However, the applicant has not been able to give any law under which providing the facility of transportation to the employees is obligatory under any law; therefore, ITC will not be available to him.

The businesses will have to forego the tax benefits availed on the hiring of vehicles for pick up/drop facility being provided to woman employees, specially challenged employees and regular employees.

This restriction will affect the perquisite benefits given to the employees on account of transportation. It would also result in increasing the levy of income tax on such additional costs incurred by the company.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in