Perks, gifts to employees may come under GST

By Prachi Verma, ET Bureau|Jul 06, 2017, 06.17 AM IST

NEW DELHI: India Inc may have to deal with another avatar of GST — the tax may be applicable on senior executives’ big-ticket perquisites over and above those mentioned in the employment contract and on gift items of over Rs 50,000. However, companies should be able to claim input tax credit on these intracompany ‘transactions’. 

Tax professionals ET spoke to said the rate may be in the 18-43% band, depending on the nature of the perk/gift. A finance ministry official, who did not wish to be identified, said an employer’s gifts to employees will be treated as supplies without any consideration and attract GST. However, companies are likely to be able to claim input tax credit on it. 

Keeping tabs on company perks and gifts will not be an additional enforcement cost to the government, tax experts said. All purchases by companies will be available on GSTN. Therefore, during audits these issues can be easily identified. 

GST rules say services by an employee to the employer will not attract tax if they are related to his/ her employment. However, other kind of services may attract GST. “If an employee acts as a DJ in a company offsite and gets paid, such payment by his employer will attract GST,” said Waman Parkhi, partner, indirect tax, at consultancy firm KPMG. 

Gift Versus Reward 

“Free services not part of employment contract and gifts above `50,000 per year will be subject to GST. This could increase cost for companies offering such benefits. The government should clarify ambit of free services — such as gym, crèche, meals — that will be subject to GST,” said Pratik Jain, partner, leader indirect tax at PwC. 

Companies may even start including some of these perks in the employment contract as a consequence of this new GST definition, tax experts said. “In case these perks become part of the job contract, they would attract additional income tax employees would have to bear the cost,” said MS Mani, senior director, Deloitte Haskins & Sells LLP. 

Such perks may include paid holidays, holiday homes, club memberships and chauffeur assistance. Companies often give gifts to employees – it can be a small one like a pen or an expensive one like an iPhone or gold coin of 20 grams. All such gifts come under GST. 

“This means companies will now have to keep an account of all gifts given to each employee and start paying tax on some gifts,” said Parkhi. 

However, there can be cases where a gift is a reward for performance. Parkhi said: “A question may arise whether a particular item is a gift or a reward and whether a reward should attract GST or should be treated as a performance bonus in nature of salary and therefore under the ambit of income tax.” 

Company cars are one of the biggest perks senior executives get. Personal use of company cars can be treated as a service and attract GST. “It will be a big exercise to find out what is the personal use unless a log book, as in the case of government vehicles, is maintained by the employee,” Parkhi said. 

As ET had reported earlier, the amount that companies pay to leasing companies is significantly higher under GST – from 12-14% VAT earlier to 29-43% under GST. 

“The company that provides cars on a lease to senior employees may or may not pass on tax increase to the employee depending on their HR policies,” says Mani of Deloitte. 

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