GST: The Curious Case Of Perquisites For Employees
By Team Legistify / 2017-06-10

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Over the past one year, the government has moved very briskly to push the Goods and Services Tax (GST) reform in India. The macroeconomic idea behind GST has always been very simple - to consolidate all the taxes levied on goods and services across India and bring them under one single umbrella of tax.

The scope of GST is extremely wide; between goods defined as ‘every kind of movable property’ and services being ‘anything other than goods’ , it is understood that supply of all movable goods and services made for a consideration, is within the purview of GST. Additionally, the government has also identified a few typical transactions (under Schedule 1) which would be considered as taxable supply even if they were made ‘without consideration’ .

The current indirect tax laws may not be equipped to deal with transactions where consideration is either paid in kind or not paid at all. For example, Value Added Tax or Sales Tax legislation do not contain a provision for dealing with transactions of barter or exchange. Similarly, in the case of Service Tax legislation, if a service is provided without consideration, the same cannot be taxed for lack of any consideration.

Now, supplies without consideration, which are covered under Schedule 1, are also liable to be taxed under the the Central GST Act, 2017 (CGST).

Further, of the four transactions mentioned under Schedule 1, Clause 2 mentions that any supply of goods or services between related parties when made in the furtherance of business, shall be considered within the ambit of taxable supply for GST. A reference to the definition of related parties reveals that even employer and employees are considered as related parties. Thus, the aforesaid clause can be interpreted to bring under its ambit a wide range of transactions taking place between employers and employees for which there is no consideration.

However, the government has curtailed the scope of taxable transactions between employers and employees with the insertion of Clause 1 of Schedule 3 of the CGST Act, 2017 where it is mentioned that services provided by an employee to the employer in the course of employment are to be neither treated as supply of goods nor supply of services. Accordingly, any emolument or salary paid by the employer to his employee, in lieu of employment, is likely to be outside the ambit of GST.

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