It is a widespread practice among companies to provide employee benefits and facilities — from canteen and parking facility, to medical insurance and cab facility.
While some of these perquisites are free, a subsidised amount is recovered by the company from its employees in other cases. The taxability question of perquisites has been disputed since the inception of the Goods and Service Tax (GST). With a recent circular clarifying the taxability of prerequisites, the issue is whether the circular has put at rest prevailing issues. To complicate matters, specific advance rulings issued post the circular appear to have extended the applicability of the circular.
The circular clarified that perquisites provided by the employer to its employees under a contractual agreement between the two parties are services provided by the employee to the employer concerning his employment. When provided between the employer and employee, these perquisites will not be subjected to GST.
While there is clarification from the circular, the moot point is whether the circular covers a scenario where the employer recovers an amount, typically a subsidised amount, for providing these facilities. Will such a transaction qualify as a supply by the employer to the employee and be subject to GST on the subsidised amount recovered from employees?
The definition of “business” under GST law covers any activity or transaction that is incidental or ancillary to the main activity. The amount recovered from the employees for providing canteen and transportation facilities can be considered as supply of service for further business.
It is essential to take note of the contrarian view taken in recent Advance Rulings such as that of Zydus Lifesciences and SRF. Per the Advance Rulings, providing canteen and/or transportation facility by Zydus and SRF at a concessional amount is not considered a supply of goods or services on the amount recovered from the employees and hence, cannot be subjected to GST.
The Authority for Advance Ruling (AAR) pronounced the rulings based on the following considerations:
Service of a canteen/ transportation facility is not the furtherance of the applicant’s business as the applicant is not engaged in providing canteen/transportation facility.
The applicant facilitates payment between the contractor and the employees. The applicant does not retain any amount collected from the employees; it merely acts as a pass-through between the employee and the contractor.
The term “perquisite” has not been defined under the GST law. It is any casual emolument or benefit attached to an office or position besides salary or wages. It can be regarded as that portion of the facility that is free to the employees. It appears that only facilities provided to the employees on which the employer makes no recovery are covered under prerequisite.
It appears that the circular cannot be applied to the portion of the amount recovered from the employees for providing the canteen and transportation facility. The reliance of the AAR on the circular is misplaced.
A possible view is that the rulings in the SRF and Zydus cases do not reflect the correct position of law. Therefore, placing reliance on these Advance Rulings may lead to future disputes. Additionally, as an Advance Ruling is binding only on the applicant seeking the ruling and on the concerned officer or the jurisdictional officer in respect of the applicant, the rulings in the Zydus and SRF cases do not have universal applicability.
While the circular is intended to settle disputes concerning the treatment of perquisites under GST, the Advance Rulings have extended their applicability. It has resulted in the opening of a Pandora’s box. The issue is far from settled, and there is a need to clarify the taxability scenarios, especially where the employer recovers a subsidised amount from the employee, to put the taxability issue at rest.
The writer is Partner, Lakshmikumaran & Sridharan