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As per Section 7 of CGST Act 2017, supply includes the activities specified in Schedule I, made or agreed to be made without a consideration.

Schedule-I provides a list of activities which are treated as supply even if made without consideration. Point No. 2 of this schedule is reproduced below :-

“Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business.

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.”

Explanation to Section 15 of such act provides a list of persons to be deemed as related persons. Point a(iii) of such explanation deemed that ’employer and employees’ are related persons for the purpose of levy of GST under Schedule-I.

By reading all the points altogether, it has established that any supply by an employer to an employee is leviable under GST. However, any supply upto Rs 50,000/- during  a financial year to an employee will remain an exempt supply. So, there would not be requirement of payment of GST on supplies upto such limit.

Now, the question arises here that what constitutes a ‘Gift’. Further, what will be position in case of a supply by an employer to an employee under an employment agreement. Whether such supplies also comes under the monetary limit of Rs 50,000/- per annum.

To answer all such questions, CBIC has issued a press release on 10 July 2017.

Gift has not been defined in the GST law. In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift.

Another issue is the taxation of perquisites. It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST.

Further, the input tax credit (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C).

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