GST applicability on services in employment!
Is GST applicable on services provided by employees to employers?
No, GST does not apply to services by an employee to the employer during or about his employment (Schedule III of the CGST Act, 2017). However, any service provided by the employee to the employer that is not covered in the scope of his employment agreement may be leviable to the GST.
Is GST applicable on employee notice pay recovery?
Notice pay recovery is the amount collected by the employer from the employee as compensation for not serving the notice period. There is ambiguity regarding the applicability of GST on the same.
However, as per many advance rulings, GST is not applicable on Notice Pay Recovery from Outgoing Employees. Also, CBIC, vide circular №178/10/2022-GST DT.3rd August 2022, has clarified that GST is not payable on the notice pay recovery.
Is GST applicable on the amount received from the employees for various facilities such as canteen, transportation, telephone, etc?
Many employers recover nominal amounts from their employees for providing them with canteen services, transportation services, telephone bills, etc.
There are many advanced rulings on GST applicability on such recoveries. As per the majority of the rulings, GST is not applicable on such recoveries as these are the perquisites provided by the ‘employer’ to the ‘employee’ in terms of the contractual agreement between the employer and the employee.
Therefore, they will not be subjected to GST when provided in terms of the contract between the employer and employee as per Schedule III of the CGST Act, 2017.
Can the employer avail ITC of the services provided to the employees?
ITC shall be available for food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting, or hiring of motor vehicles, vessels, or aircraft life insurance or health insurance, membership of a club, health, and fitness center; travel benefits extended to employees on vacation such as leave or home travel concession, where an employer must provide the same to its employees under any law for the time being in force.
Can employers claim ITC for leasing Motor Vehicles, Laptops, etc.. to employees?
Regarding leasing of motor vehicles, CBIC, vide circular №172/04/2022-GST Dt. 6th July 2022 has been clarified as per the following. Question №4:- Whether the provisions of sub-clause (i) of clause (b) of sub-section (5) of section 17 of the CGST Act bar availment of ITC on input services by way of “leasing of motor vehicles, vessels or aircraft” or ITC on input services by way of any type of leasing is barred under the said provisions?
Clarification by CBIC:-
- Sub-clause (i) of clause (b) of sub-section (5) of section 17 of the CGST Act provides that ITC shall not be available in respect of following supply of goods or services or both — “(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life
Insurance and health insurance: Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply”.
2. It is clarified that “leasing” referred to in sub-clause (i) of clause (b) of sub-section (5) of section 17 refers to the leasing of motor vehicles, vessels, and aircraft only and not to the leasing of any other items. Accordingly, availing of ITC is not barred under sub-clause (i) of clause (b) of sub-section (5) of section 17 of the CGST Act in case of leasing, other than leasing motor vehicles, vessels, and aircraft.
In view of the above clarification, ITC on leasing motor vehicles, vessels, and aircraft shall not be available. However, ITC can be availed on leasing of equipment such as laptops, handsets for mobile, etc.
Conclusion
In conclusion, the applicability of GST on services in employment involves several key considerations. Services provided by employees to employers during their employment are not subject to GST under Schedule III of the CGST Act, 2017.
However, any service provided outside the scope of employment may be taxable. Notice pay recovery is generally not subject to GST, as clarified by CBIC in Circular №178/10/2022-GST.
For facilities like canteen, transportation, and telephone provided by employers to employees, GST is typically not applicable if these are considered perquisites under the employment contract.
Regarding Input Tax Credit (ITC), employers can claim ITC on certain services provided to employees if mandated by law. Specifically, ITC is not available for leasing motor vehicles, vessels, and aircraft, but can be claimed for leasing equipment like laptops and mobile handsets, as clarified in CBIC circular №172/04/2022-GST. Understanding these nuances helps businesses ensure compliance with GST regulations while optimizing their tax positions.
