GST on Gifts

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Recently, the CBEC has issued a Press Release on July 10, 2017, giving clarification on applicability of GST on gifts/perquisites by employer to employees.

Background:

It may be noted that as per Para 2 of Schedule I read with Section 7 of the CGST Act, 2017, gifts upto a value of Rs. 50,000/- per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than Rs 50,000/- made without consideration are subject to GST, when made in the course or furtherance of business. Further, in terms of Para 1 of Schedule III, the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (i.e. neither supply of goods or supply of services).

Now, the question arises as to what constitutes a gift and whether perquisites paid to the employees will be considered as gift, since, gift has not been defined in the GST law.

Clarification in Press Release:

  • 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.
  • Therefore , the Finance Ministry has clarified that the supply by an 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 is not allowed on membership of a club, health and fitness centre. Therefore, 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).

Read more at: http://www.cbec.gov.in/resources//htdocs-cbec/press-release/pres-rls-gst-gift-dt10july.pdf