India Inc may have to start restructuring compensation packages or human resource benefits of their employees to ensure they don’t face taxing times under the goods and services tax (GST).
Reimbursements on home rentals, telephone charges beyond a certain limit, medical premiums for extra coverage, health check-ups, transportation, gym use, uniforms or even re-issue of identity cards could face GST.
Tax experts have started advising companies to ask HR departments to examine these issues closely, especially in the wake of a recent decision by the Authority for Advance Rulings in a case concerning canteen charges. Though AAR rulings are case specific, they can be taken as precedent. AAR had ruled that canteen charges recovered from an employee would be liable to GST. GST on employer to-employee supplies could cause employers to stop charging for services rendered in a bid to save on that levy. “This may impact the salary packages, given the employers may want to retain the same cost to company for employees,” said Bipin Sapra, partner, EY.
“There are various recoveries that corporates make from their employees, which could be impacted by the recent AAR decision,” said MS Mani, partner, indirect tax, Deloitte Haskins & Sells LLP.
Mani said employers may be making recoveries for these services through salaries without issuing any invoice to the employee making it difficult to put in place processes to track and pay GST.
Alternately, the additional GST cost may be passed on to employees and a pitch made for exemption.
“Eventually the companies will see the overall cost and additional GST will be passed on to employees… or some of them may just stop the practice of providing subsidised meals to employees to avoid additional compliances and possibility of dispute on valuation. There is definitely a case for exemption here,” said Pratik Jain, indirect tax leader, PwC.
Experts cautioned that GST may still apply even if no charge is recovered from employee. Also, companies may have to pay GST on full value for services provided at concessional rates.
“Employer-employee relationship is treated as that between related party under GST and therefore these services will be liable to GST on whatever is the applicable open market value,” said Sapra.
The open-market value will need to be imputed for services provided and tax paid.
India rolled out GST on July 1 last year, replacing multiple state and central taxes such as excise duty, service taxes, value added tax and entry tax.