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GST cannot be levied on sums recovered from staff for benefits: AAR ruling - GST Station

GST cannot be levied on sums recovered from staff for benefits: AAR ruling

GST cannot be levied on sums recovered from staff for benefits: AAR ruling

    MUMBAI: A ruling by Maharashtra Authority for Advance Rulings (AAR) is a shot in the arm for corporate employees. They will not have to bear a GST levy, when they partly reimburse the employer company for various facilities such as a canteen food and medical insurance cover provided to them.

    Typically, as per corporate policies, a portion of expenses for providing these facilities is recovered from employees as a deduction from salary. Till now it was a grey area in the state on whether GST would be levied on the amounts paid by employees. 

    The recent ruling settles the matter for employees in Maharashtra and it is also expected to have persuasive value for similar issues across the country. 

    The AAR, in its ruling, which is now available in the public domain, has held that recovery of 50% of the amount of medical insurance premium from employees for covering the health of parents cannot be treated as recovery made towards ‘supply of services’. Thus, no GST will apply. 

    The applicable rate of GST on medical insurance premium is currently 18%. The Maharashtra ruling was given to POSCO-India Pune Processing Centre, a Pune based entity that is part of a South Korean group of companies. The AAR bench observed that it is the insurance company which is providing the service of insurance and not the employer (company), which is in the business of distribution of steel coils. 

    Earlier, the Kerala AAR had ruled in a case (Caltech Polymers) that recovery from employees for canteen services (ie, food) provided by the company is subject to GST. This had opened a Pandora’s box. 

    Tax experts had held that in the backdrop of the ruling, all employer-to-employee supplies could be held taxable, increasing the compliance burden for the company and resulting in additional costs for employees, from whom GST would be recovered. 

    “This ruling is music to the ears of lakhs of employees of several companies in Maharashtra, as the same logic set down in the ruling shall apply to all third-party service-related recoveries made by the companies from their employees,” said Sachin Menon, head of indirect tax at KPMG India. 

    “On the flip side, for companies, the cost of providing these facilities to their employees will increase, as the input tax credit (say on the insurance premium paid to the insurance company) will be denied to them.” Maharashtra’s AAR also dealt with other facets in its ruling.

    As per the POSCO corporate group policy, the managing director and general manager were deputed to the Indian company. As they moved to India, without their families, instead of a cash perquisite, they were provided with rent-free accommodation in hotels. 

    This perquisite in kind was included in their salary under the Income Tax Act. The Indian company in its application to AAR sought to know whether it could avail of input tax credit on the hotel stay expenses. The input tax credit was denied on the ground that it was not towards ‘furtherance of business’ and the personnel deputed would have performed their duties, even if they were provided with any other residential accommodation.

    Source- Times of India.

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