Impact of GST on employer-employee

transactions
June 2017
Overview

PwC
Transactions between Employer and Employee

Supply from Employer to Employee

Where gift up to value of INR 50,000 is provided by employer to employee in a financial
year, same would not qualify as supply. The term gift has not been defined in the GST law
In case there are other supplies made by employer to employee (with or without
consideration), the same may qualify as supply

Supply from Employee to Employer

Same would not be treated as supply provided the same is in course of or in relation to the
employment

Since employer and employee have been deemed as related person under CGST Act
(Section 15) , valuation for supplies which are taxable under GST are to be governed in terms
of the Valuation Rules issued for related party transactions (discussed in subsequent slide)

PwC
Slide 3
Transactions between Employer and Employee
Broad principles for analyzing whether a transaction between employer and employee would be liable to
GST or not

Any facility which is common to all employees (and there is no identified employee/ customer such as
free tea/ coffee etc. in office) should not be liable to GST

Any facility provided for official usage by employee in the normal course of employment (such as office
laptop, parking etc.) should not be liable to GST

Reimbursements to employee (such as mobile bills etc.) is not a supply per se by employer to employee
and hence, should not be liable to GST

Any other supplies by employer which is not in normal course of employment need to analysed on case-
to-case to determine applicability of GST

PwC
Slide 4
Valuation for employer-employee transactions
Specific order to be followed

Full value in money for supply of goods at the same time of transaction
Open market value
between two unrelated parties where price is sole consideration

Value of supply of Supply of goods under similar circumstances in respect of characteristics,

goods of like kind quality, quantity, functional components, materials and reputation of
and quality goods

110% of cost of production or manufacture or cost of acquisition of such

Cost plus basis
goods or cost of provision of such services

Reasonable means consistent with the principles and general provisions of

Residual method
Section 15 of CGST Act and the Valuation rules

PwC
Slide 12
Impact on key transactions

PwC
 Taxability of specified transactions
Transactions Nature of transaction
Medical Company offers medical
insurance for insurance to its employees
employees and their family members
and family No charges are recovered on
members account of medical
insurance from employees
This is covered in the
employment manual for the
employees which form part
of the employment contract
Personal Company offers personal
accident accident insurance to its
insurance employees
No charges are recovered on
account of such insurance
from employees
PwC
Likely GST implications
No GST liability since
there is no underlying
supply per se by the
Company to its employees
In the agreements/
contracts with the medical
insurer it should be clearly
provided that Company is
merely making payment on
behalf of its employees
No GST liability since
there is no underlying
supply per se by Company
to its employees (and there
is no identified employee to
whom supply is made)
Credit availability to
Company
Supply is made by insurance
Company directly to the
employee and not to
Company and hence, no
credit availability
Further, taxes paid on
expenses incurred in relation
to employee health
insurance (unless notified as
obligatory under any law)
are not eligible as credit
Supply is made by insurance
Company directly to the
employee and not to
Company and hence, no
credit availability
Further, taxes paid on
expenses incurred in relation
to employee life insurance
(unless notified as obligatory
under any law) are not
eligible as credit
Slide 14
 Taxability of specified transactions
Transactions Nature of transaction
Health check Company offers annual
up facility health check facility to
its employees within
office premise
Likely GST implications
No GST liability since there is no
underlying supply per se by the
Company to its employees (and
there is no identified employee to
whom supply is made)
Credit availability to
Company
Taxes paid in relation to
health services should
not be eligible as
credit

Provision of Company arranges Company can explore the Taxes paid on outdoor
subsidized or catering services for possibility of structuring the catering would be
free food serving food at free of contract with caterer to the effect available as credit
All employee cost to its employees that the caterer is supplying food where Company
event on fruits, womens day directly to the employee (and may discharges GST on
lunch etc. also recover subsidized value from outward supply to the
Lunch for the employee) and raises invoice employee at open
employees on the Company for recovery of the market value, otherwise
womens day, In certain cases, partial amount. In such a case, GST the same would be a
Diwali etc. amount may be liability should ideally not arise on cost
recovered from the Company
customer s and balance
payment made by
company

PwC
Slide 15
 Taxability of specified transactions
Transactio Nature of Likely GST implications Credit availability to
ns transaction Company
Free cab Company In case not covered in employment contract Taxes paid on cab expenses
or provides GST liability to arise since the transaction would would be available as credit
subsidized cab facility be treated as supply by employer to employee. where Company discharges
facility at free of Being a related party transaction (and employee GST on outward supply to
Car cost to its not eligible to claim input tax credit), GST the employee at open
facility- employees would need to be paid as per the open market market value, otherwise the
Pick up value (which may be considered as the amount same would be a cost
and paid by Company to transporter) In light of the rate schedule
Drop Company may explore possibility of structuring for services, tax rate of 5%
from the contract with transporter to the effect that on rent-a-cab services is
home to the transporter is supplying cab services directly applicable with condition of
office to the employee and raises invoice on Company no input tax credit.
for recovery of the amount. In such a case, GST However, in terms GST Act
liability should ideally not arise on Company (Section 17), credit of rent-
since there is no underlying supply per se by a-cab can be availed when
Company to employees the same is used for making
outward supply of same
In case not covered in employment contract goods or services.
Considering the same is part of employment Accordingly, credit may not
contract and is provided as part of contractual be allowed in case where
obligation, the same should not be subject to tax is paid on outward
GST liability supply at the rate of 5%.

PwC
Slide 16
 Taxability of specified transactions
Transactions Nature of transaction
Mobile Company provides
handsets mobile handsets to its
given to employees for official
employees purposes
Mobile Specified employees are
phone eligible to claim
entitlements reimbursement of
mobile phone bills
(basis eligibility criteria)
Relocation In case of any employee
benefits relocation, Company
reimburses travel
related expenses and
also incur certain
expenses in relation to
transportation of
household goods of
employee, etc.
PwC
Likely GST implications Credit availability to Company
No GST liability since Taxes paid on procurement of
such benefits are extended mobile handsets would be
by Company to employee available as credit since such
for official use/ purposes goods are used in course or
furtherance of business
No GST liability on Not applicable since invoice
reimbursements made to would not be in name of
employee since there is no Company Process may be
underlying supply per se by defined by the Company for
Company to its employees claiming credit in case of
reimbursements
No GST liability since Taxes paid on travel/
such benefits are extended transportation expenses (other
by Company to employee than those which are specifically
for official use/ purposes not allowed) likely to be available
as credit since such services are
used in course or furtherance of
business - Process may be
defined by the Company for
claiming credit in case of
reimbursements
Slide 17
 Taxability of specified transactions
Transactions Nature of transaction Likely GST implications Credit availability to
Company
Temporary Company provides No GST liability since such benefits No input tax credit
accommodati temporary are extended by Company to will be available as
on for first accommodation to its employee for official use/ purposes used by the employee
few weeks of employees in the first for personal
joining few weeks of joining consumption

Recovery on Company recovers Such recovery may be treated as Not applicable

account of charges from employees recovery of liquidated damages and
loss of ID through payroll hence, should not qualify as supply
cards/ other deduction in case of loss liable to GST
assets of any asset (such as ID
cards, laptops etc.) by
the employee
Sale of used Used laptops are given Such transaction to be treated as Not applicable
laptops by Company to supply and accordingly, liable to GST
(capitalized in employees on FoC basis
the books) or at subsidized value Open market value (being a capital
goods/ asset) would be treated as the
higher of amount of credit availed (as
reduced by 5% per quarter from the
date of underlying input invoice) or
the tax on transaction (sale) value

PwC
Slide 18
 Taxability of specified transactions
Transactions Nature of Likely GST implications Credit availability to
transaction Company
Gifts to Gifts such as T-shirts, GST payable in case value of Requirement of reversal of
employees stationery, momento, gifts provided to an employee input credit, if availed
car models, trophies during a FY exceeds INR because of specific exclusion
- Diwali or ,etc are distributed to 50,000 Open market value
other occasion employees on Diwali, to apply. Tax to be paid where
(such as farewell or other total value exceeds INR
farewell) occasions 50,000
- T-shirts, For instance: 1) In case
stationery, individual gifts given during a
miniatures, FY exceeds INR 50,000 (say
etc INR 55,000), GST to be paid
on INR 5,000. 2) In case
single gift exceeding INR
50,000 (say INR 55,000)
given to employee, GST
should be applicable on full
INR 55,000

Company to track gifts given

to individuals during FY to
calculate applicable GST
liability

PwC
Slide 19
 Taxability of specified transactions
Transactions Nature of transaction
Company car Company provides car to its
given to employees for both personal
employees and official purpose (remains
as asset in books)
Car lease Car obtained on financial
scheme lease by the Company from
dealer and given to
employees for official use.
Car is recorded as an asset in
Company's books
Amount equivalent to car
entitlement is reduced from
the basic salary of the
employee. Notional amount
is added as perquisite in
employees' CTC
PwC
Likely GST implications Credit availability to
Company
No GST liability on car No credit should be available
provided to employee, as of the GST paid
it is made in the course
of employment (part of
employment
contract). Hence, there
is no underlying supply
per se by Company
No GST liability since Since the Company has
such benefits are purchased the Car, in light of
extended by Company to specific restriction on credit
employee for official use/ eligibility for motor vehicles,
purposes (the underlying tax paid on procurement of
employment contract motor vehicle should not be
should also substantiate eligible as credit to Company
the same)
Slide 20
 Taxability of specified transactions
Transactions Nature of transaction Likely GST implications Credit availability
to Company
Employee Cash allowance to be given No GST liability since Not applicable
referral policy for successful reference. consideration (viz. referral bonus)
TDS is deducted paid by Company is towards services
provided by employee in the normal
course of employment (on which
applicable Income tax is also
deducted at the time of payout)

Notice pay Company recovers notice Notice pay recovery is an issue under Not applicable
recovery pay charges through payroll current Service tax regime and may
deduction in case of early continue to remain an issue under
relieving of the employees GST regime

However, considering that the same

appears from contractual obligation,
a position may be taken that no GST
should be charged on the same

Company needs to appropriately

word the same in employment
manual
PwC
Slide 21
 Taxability of specified transactions
Transactions Nature of transaction Likely GST implications Credit
availability to
Company
Long Service On Completion of No GST liability since such benefits are Not applicable
Awards specified years-gifts or extended by Company to employee for
money in payroll is official use/ purposes
given to employees by
Company. TDS borne Further, income tax is also borne by the
by employer employee on such expenses

House lease Company offers house Not applicable since rental of residential Not applicable
lease facility to property is exempt from GST. since rental of
specified employees. residential
Company pays rent, property is
security deposit, exempt from
brokerage, etc. to the GST
landlord and recovers
rent paid from
employees through
payroll deduction

PwC
Slide 22
 Taxability of specified transactions
Transactions Nature of transaction Likely GST implications Credit availability to
Company
Employee Company allocates No GST liability since there Taxes paid on procurement
welfare certain amount for each is no underlying supply per se of goods/ services in relation
schemes (such employee in relation to by Company to its employees to town hall/ offsite
as off-site / recreational activities activities should be available
town hall, etc) (such as offsite, town as credit to Company
hall, etc) provided goods/ service are
not specifically restricted
(e.g. food and beverages)

Free use of We understand that No GST liability since such Taxes paid on procurement
company own yhis is covered in the benefits are extended by of uniforms should be
products employment manual for Company to employees for available as credit since they
including the employees as well official use/ purposes are used in course or
uniform, furtherance of business and
shoes, etc not used by employees for
provided for personal consumption
free of cost
basis

PwC
Slide 22
 Taxability of specified transactions
Transactions Nature of transaction Likely GST implications Credit availability to
Company
Company Employees are entitled Such transaction to be treated Not applicable
products to buy Company as supply and accordingly,
supplied at products at discounted liable to GST
discounted prices
rates to Being a related party
employees transaction (and employee not
eligible to claim input tax
credit), GST would need to be
paid as per the open market
value
Free Gym/ Company provides free No GST liability since such Taxes paid on procurement
Crche gym/ crche facility to benefits are extended by of goods/ services in relation
facilities employees without Company as a common facility to gym/ crche should be
recovery of any amount to all employees in general available as credit to
(and there is no identified Company provided goods/
employee to whom supply is service are not specifically
made) restricted (e.g. food and
beverages)

PwC
Slide 22
 Taxability of specified transactions
Transactions Nature of transaction Likely GST implications Credit availability to
Company
Leave Support Employees are eligible No GST liability since there is Not applicable
for of Earned leave, no underlying supply per se by
sick leave and casual Company to its employees
leave

Support Employees are eligible No GST liability on Not applicable

towards to claim reimbursement reimbursements made to
corporate up to a certain amount employee since there is no
education for pursuing corporate underlying supply per se by
education Company to its employees

PwC
Slide 22
Claiming credits on employee reimbursements

Various expenses are claimed by employees such as:

Travel expenses
Telephone expenses
Hotel expenses

For Company to avail credit, invoices issued by vendor for travel, telephone or hotel
expenses etc., should provide correct GSTIN of Company

Employees should be instructed to provide Companys GSTIN to vendors

Vendor to issue invoice in the name of Company

Necessary modifications to be made in system to ensure employees :

enter necessary information (such as invoice number, invoice date, GSTIN of vendor,
taxable value, tax amount etc.) at the time of claiming expense reimbursements

same should be verified at the time of processing of claims

PwC
Slide 23
Thank you!

2017 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers Private Limited
(a limited liability Company in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of
PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.