GST on Employee Reimbursements Expenses
- Reimbursement of expenses for supplies received by employees from registered dealers : The expenditure is in the nature of business cost incurred for the furtherance of business, employer shall be eligible to avail of the Input Tax Credit (ITC) of the GST paid by employee, at the time of receipt of such supplies, subject to the condition that the tax invoice should contain the name and GSTIN of the employer as the recipient.
- Reimbursement of expenses for supplies received by employees from unregistered dealers:
- Section 9(4) of the CGST Act provides for the taxability of certain transactions under Reverse Charge Mechanism (RCM). The relevant excerpts from the Act are as below:“The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”
- Employee can be said to be an ‘agent’ of his employer . Section 2(93) of the CGST Act, is reproduced as below:“(93) “recipient” of supply of goods or services or both, means—
(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration; (b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and (c) where no consideration is payable for the supply of a service, the person to whom the service is rendered,
and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;”
- Thus GST on reverse charge has to be paid by Employer on reimbursement of expenses to employees if it relates to purchases from unregistered person.
- GST on Gifts to Employees
- As per Schedule II of the CGST Act, read with Section 7 of the CGST Act, “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”
- The term “gift” has not been defined in the GST Acts. Section 122 of the Transfer of Property Act, 1882 (TOPA) defines the term “gift” as follows:”Gift is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the done, and accepted by or on behalf of the donee.”
- Thus reimbursement of personal expenses of employee made on special circumstances will be considered as gift which should be subject to GST if value is more than fifty thousand rupees (per employee) in a financial year.
- No GST on Employee Services
- Schedule II of the CGST Act, read with Section 7 of the CGST Act, , the following activities or transactions are neither treated as a supply of goods nor supply of services:“Services by an employee to the employer in the course of or in relation to his employment”
- Expenses made in the course of or in relation to the employment, shall not be treated as supplies under GST .Such reimbursements can be fixed like Travel allowance/Dearness Allowance , HRA etc or may be based on actuals as well. In the books of account the employer would account for these expenses as salaries or employment cost.
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