An overview of: Is GST applicable on gifts by employer to employee?

It is being reported that gifts and perquisites supplied by companies to their employees will be taxed under GST.

Gifts up to a value of Rs 50,000/- per year by an employer to his employee are outside the consideration of GST.

However, gifts of value more than Rs 50,000/- made without consideration are subject to GST.

The question arises as to what constitutes a gift. A gift has not been defined in the GST law. In common parlance, the gift is made without consideration, voluntary in nature, and made occasionally. It cannot be demanded as a matter of right by the employee, and the employee cannot move a court of law to obtain 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 during or concerning his employment are outside the scope of GST (neither supply of goods nor supply of services). It follows from there that collection by the employer to the employee in terms of a contractual agreement between the employer and the employee will not be subject to GST.

Further, the Input Tax Credit (ITC) Scheme under GST does not allow ITC the purchase a membership of a club or health and fitness centre [section 17 (5) (b) (ii)]. These services are provided free of charge to the employees, with appropriate GST payment by the employer. The same would hold for free housing to the employees when supplied in terms of the contract between the employer and employee and is part and parcel of the cost-to-company(C2C).