The decision also highlighted that the Input Tax Credit (ITC) is limited to the cost borne by the company for offering these canteen services.

Kohler India, in compliance with the Factories Act, 1948, had entered into an agreement with a canteen service provider (CSP) to supply meals to its workers. The CSP invoices the company based on the employees’ consumption, which is tracked through the factory’s system. While the company bears a portion of the canteen costs, the remainder is deducted from employees’ salaries without any profit motive.

The key issues addressed in the ruling were whether the nominal deduction from employees’ salaries for meals would be regarded as a ‘supply’ under the CGST Act, 2017, and whether the company could claim ITC for GST charged by the CSP for canteen services provided as mandated by the Factories Act, 1948.

The AAR concluded that the perquisites given by an employer to an employee under a contractual agreement are not subject to GST. Additionally, the provision of canteen facilities, as required by Section 46 of the Factories Act, 1948, is undisputed. The company’s HR Manual stipulates that employees receive these services at a subsidised rate. Therefore, the salary deductions for meals are not considered a ‘supply’ under the CGST Act, 2017.

Furthermore, the company can claim ITC for the GST paid on canteen services, but only to the extent of its share of the costs, excluding the proportionate credit embedded in the employees’ share of the cost.

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The applicant argued this was in compliance with the Factories Act, 1948, which mandates canteen facilities for a workforce exceeding 250. The applicant, engaged in apparel manufacture, contended that it didn’t directly provide canteen services to employees; the third-party did.

Referring to Section 7 of the CGST Act, the applicant argued that as it was not in the business of providing canteen services, the employee recoveries weren’t a supply. The GST Policy Wing Circular stated that perquisites provided by employers to employees, in lieu of services, aren’t subject to GST. Given the mandatory nature of the canteen facility under the Factories Act, it was asserted that even in the employee-employer transaction, GST wasn’t applicable.

The AAR ruled in favour of the applicant, stating that GST was not liable on recoveries from employees for canteen services.

Another issue involving AAR was that of transportation services provided to employees by a third-party. The service provider charged Rs 2,277 per employee per month, with the applicant recovering Rs 350 and bearing Rs 1927. The applicant argued that, being in the apparel manufacturing business, it wasn’t engaged in bus transportation. It was contended that the recoveries from employees for transportation services didn’t constitute a supply under Section 7, as the applicant was not the supplier but the receiver. The AAR concurred, stating that GST was not applicable for recoveries from employees for transportation services.

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This 400 per cent increase in GST liability will prove to be very challenging for a significant number of enterprising individuals who had introduced innovations within the gaming space. The All India Gaming Federation (AIGF) can even lead to the closure of many micro, small and medium enterprises (MSMEs) as well as startups in the industry.

Despite the company being in a strong position, the recent 400 per cent surge in GST presents a significant challenge. The decision will impact around 55 employees, including 24 part-time employees.

This downsizing at Hike has occurred shortly after the gaming platform Mobile Premier League (MPL) took a similar step. Recently, MPL laid off nearly half of its India-based team, letting go of approximately 350 employees. This move was aimed at easing the financial strain brought about by the GST hike, which has pushed the tax rate to 28 per cent.

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As per the new GST rules, the firm will have to pay 28 per cent tax on full deposit value. Till now, gaming platforms used to pay 18 per cent GST on platform charges. This big a hike in tax burden has forced the platform to reduce headcount.

The platform’s variable costs comprise mainly people costs and costs pertaining to workplace infrastructure and server. Ways to save costs related to server and infrastructure have already been looked at.

In May 2022, the platform had quit in Indonesia, which had resulted in over a 100 people losing their jobs. About five months later, it had reportedly managed to raise about $150 million to become a unicorn. The platform was then valued at $2.3 billion.

The company, which is about five years old, was founded by Sai Srinivas and Shubh Malhotra, to offer more than 60 games including, puzzles, casual games, board games, quizzes, and even daily fantasy sports. It has more than 90 million registered users across Eruope, Asia and North America.

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The GST Council has approved this tax rate for online gaming, casinos, and horse racing, applying it to the full face value.

The all India gaming federation (AIGF), representing major companies like Nazara, GamesKraft, Zupee, and Winzo, has criticized the decision by the council, stating that it is unconstitutional, irrational, and severe. They argue that the decision disregards long-standing legal precedents that distinguish online skill gaming from gambling activities. 

The AIGF warns that the industry will be decimated, resulting in the loss of hundreds of thousands of jobs and benefiting only illegal offshore platforms.

Despite the central government’s past support for the industry, it is regrettable that such an untenable decision has been made. The increased tax burden will have a detrimental effect on the thriving gaming economy, discouraging new entrants and impeding job creation and overall sectoral growth. Online gaming stakeholders have consistently urged the government and the GST Council to impose an 18 percent GST rate instead of the recommended 28 percent, as proposed by the Group of Ministers (GoM).

The E-gaming federation (EGF), which includes members like Games 24×7 and Junglee Games, argues that an excessive tax burden surpassing revenues will render the online gaming industry unviable.

The EGF maintains that online gaming should be distinguished from gambling, emphasizing that the Supreme Court and various High Court rulings have recognized online skill-based games as a legitimate business activity protected under the Indian constitution.

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It is important to note that each branch of a company must be registered separately in its respective state. This ruling came about in response to an advance ruling application from the Chennai branch of Profit Solutions, a firm headquartered in Bengaluru.

The current ruling that brings common employees’ services within the purview of GST is based on a flawed legal premise, as the relationship between employers and employees lies outside the ambit of GST. The lack of a prescribed methodology for valuing such services is already a challenge, and the new ruling could result in further litigation if authorities begin demanding GST on employee costs. 

This decision could also complicate the ongoing debate about whether a supply of service exists between the head office and branch offices, as well as the associated valuation. Companies may face difficulties in identifying common human resources and providing intra-entity services through them, potentially resulting in a fresh round of litigation regarding services from branch offices to the head office.

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The airline, however, claims that it has not defaulted on any statutory payments, but does admit that delays have happened in making payments. It says it has been clearing dues and pending payments and discharging GST liabilities regularly.

The Company is set to receive over Rs 200 crore under the emergency credit line guarantee scheme (ECLGS). This amount will be used by SpiceJet to clear all dues and payments.

In the quarter ended June, the Airline posted a loss of Rs 789 crore. This was more than the loss of Rs 729 crore during the same quarter last year.

Only last week it was reported that many employees, including flight crew hadn’t received their July salaries. They had also not received their Form 16 for FY 2021-22, as some employees had reportedly claimed. While staff did receive salaries on time in June, their salaries have not been restored to pre-COVID levels yet.

Captains and first officers are apparently getting less than half their pre-COVID salaries. Several pilots have quit recently because of less than satisfactory salaries, irregularities, delay in payment of salaries and also because some had to pay higher tax due to tax and PF inconsistencies in their payslips.

The Airline, however, claims that salaries are being paid in a ‘graded format’. It had said that the salaries for August will be paid in a staggered fashion, beginning August end and going up till the middle of September.

Presently, SpiceJet is operating less than half its flights following an order issued by the Directorate General of Civil Aviation (DGCA), given the string of snags the airline has experienced.

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However, the Central Board of Indirect Taxes and Customs (CBITC) has now clarified that perquisites provided by employers to employees are not subject to GST, and emphasised that penalties can only be levied in cases involving fake invoices, as no goods are supplied. A perquisite is a non-cash benefit granted by an employer to the employees such as transportation, canteen, healthcare, insurance, and so on.

The CBITC has clarified that neither the services rendered by employees to employers nor perks provided to them by their firms would be subject to GST.

The rule will be applicable from July 2017.

The ambiguity was there because different authorities had different opinions on this. For instance, the Authority of Advance Ruling in Maharashtra had ruled that the bus facility provided by Tata Motors at a nominal price was exempted from GST, but a similar facility provided by Beumer India was put under GST by Haryana AAR. In another incident, GST was levied when employees paid for food services in the office canteen in a company in Kerala.

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GST may be applied on the telephone bills paid by the employers, group insurance, salary in lieu of the notice period and other recoveries.

The ruling is based on the argument that the employee is giving a service to the employer via the notice pay, and therefore, it attracts 18 per cent GST. That is because, as per the GST guidelines, tax is imposed on any activity which amounts to offering of service, whether direct or supplied indirectly.

Since employees are not registered payers of GST, it is the employer’s responsibility to pay GST on that amount, on the recoveries, through a reverse charge mechanism.

At a time when attrition is on the rise, there is a shortage of quality talent across the country, especially in the information technology space. Therefore, many employers are actually willing to pay for a good talent’s notice period in a bid to hire them at the earliest.

Job hoppers need to carefully go through their appointment / offer letters, where the notice period is usually mentioned. It can be a month or two or even three months.

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Simply put, no GST can be charged on the nominal payment made by staff for using canteen facilities provided by their employers. Tata Motors had approached the Gujarat bench of AAR for clarification whether GST is applicable on the nominal payment recovered by the Company from its staff for availing canteen facility.

Tata Motors had also requested a ruling on whether input tax credit (ITC) is available on GST charged by the party providing the canteen facility to staff of the factory. The AAR ruling said that Tata Motors offers a canteen facility to its employees, which is run by a third party service provider. A portion of the canteen charges is paid or borne by Tata Motors, while the rest, which is a nominal amount, is recovered from the staff.

The part paid by the employees is collected by the Company and further passed on to the third party canteen service provider. Tata Motors does not keep any profit margin for itself. Therefore, AAR ruled that the ITC on GST paid on canteen services is blocked credit under the GST Act and not admissible to applicant, that is, Tata Motors.

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The well-timed scheme will be of immense benefit to employees who plan to spend heavily during the festive season.

The scheme is meant for employees who are unable to claim LTC benefit in the four-year period of 2018-21. However, the it is likely to be more beneficial to government employees as they receive LTC benefit in addition to their salary. For private-sector employee, on the other hand, the LTC is usually a part of the CTC. If it is not claimed, it is paid to them after tax deduction. How private-sector employees will avail this benefit is yet not clear.

Central-government employees have been issued a circular explaining that an amount equivalent to 100 per cent of the leave encashed and half of the value of estimated travel fare will be deposited in advance into their bank accounts. The remaining will be paid against submission of bills of purchase of goods and services.

The amount received as LTC fare will be exempt from tax, as long as the employee spends an amount that is equal to three times the LTC fare and leave encashed.

Therefore, employees in the 30 per cent tax bracket will save about Rs 12,000 as tax, exclusive of surcharge and cess.

The amount received against leave encashed will be taxable and tax will be deducted at source, according to the slab rate, before payment is made to the employee.

However, the benefit can be availed only if the money has been spent via the digital mode, and on only those goods and services that attract a minimum of 12 per cent GST. The invoice indicating the GST number of the vendor as well as GST paid will also have to be submitted for claim.

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The GST law was cited by AAR in response to an application filed by the Prasar Bharti Broadcasting Corporation (All India Radio), Shimla, seeking to find out whether ITC can be claimed on hiring cabs or taxis to pick and drop employees, including women and those with disabilities, at odd hours. The broadcasting service uses hired taxis for tour/OB recordings with the state.

It was pointed out by AAR that as per GST law, ITC can be claimed only if “such goods or services or both shall be obligatory for an employer to provide to its employees under any law for the time being force”.

According to Rajat Mohan, senior partner, AMRG & Associates, the Himachal Pradesh AAR has limited the tax credit on services of hiring commercially-licensed vehicles for picking up and dropping of employees. This means, businesses cannot avail tax benefits on hiring vehicles to pick up or drop staff members, even their women employees or those employees with disabilities.

This will not only impact the perks employees receive on account of transportation, but will also hike the income tax imposed on such additional costs incurred by businesses.

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The consumption of biscuits in the rural market, which accounted for sales worth more than Rs 10,000 crore, has fallen drastically owing to the increased Goods and Services Tax (GST).

The Company has been requesting a reduction in the GST on biscuits priced at Rs 100 per kg or below, which are available for Rs 5 a pack in the market. The tax was 12 per cent earlier, but now, with the introduction of GST, the tax is fixed at 18 per cent, for all categories of biscuits, irrespective of their price. This has forced Parle to increase the price of the biscuits by five per cent. This naturally caused a drop in sales. The multiple biscuit brands meant for the mid- and low-income consumers bring in the maximum revenue for the Company. Only if the GST hike is withdrawn by the Government can business hope to pick up.

However, in the absence of any positive action on the part of the Government, the Company, which has a workforce strength of a lakh, will have to downsize.

These issues are posing a challenge to all biscuit manufacturers and not just Parle. Even Britannia has noticed a drastic fall in sales, so much so that customers are refraining from buying even the economical packs that cost merely Rs 5.

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Companies may soon change the salary structure of employees. This will happen due to GST on employer-to-employee supplies.

Companies may not only have to pay GST on the full value for services provided at concessional rates, but may have to cough up the tax even if no charge is recovered from the employees.

For instance, companies run subsidised canteens for their employees where there is a monetary transaction between the employee and employer. Now this transaction will be taxable. In such a situation, companies will stop charging for services rendered in a bid to save on that levy. Again, no company will want to bear the extra cost and the salary packages will be restructured to retain the same cost to the company.

Besides, GST treats the employer–employee relationship as one between two parties and, hence, these services will be liable to GST at whatever the applicable open market value is.

This development is in the wake of a recent judgement by the Authority for Advance Rulings (AAR) on canteen charges.

In March, Caltech Polymers Pvt. Ltd had approached AAR, a facilitation body to help taxpayers ascertain their income tax liability, and thereby avoid long-drawn and expensive litigation, asking whether the canteen service provided to its employees according to the provisions of the Factories Act, 1948, would come under GST. The Company had added that it was recovering the canteen-running expenses from its employees without any profit margin.

In addition, reimbursements on home rentals; telephone charges beyond a certain limit; medical premiums for extra coverage; gym use; uniforms or even re-issuing identity cards could be subjected to the new Goods and Services Tax.

All of these are bound to affect the salary packages as companies will try to keep their cost intact.

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With the new Goods and Services Tax, coming into effect from July 1, the demand for expert tax professionals has significantly increased as businesses try to adjust their books. With that in mind, the ministry of skill development and entrepreneurship has launched a GST training programme to skill more than two lakh youths in the coming six months, to handle tax compliance issues, such as invoice making and more.

The national training programme was announced under the Pradhan Mantri Kaushal Vikas Yojana (PMKVY), on the occasion of the second anniversary of the Skill India Mission on July 15. A total of 100 GST training centres have been set up across the country.

“This would make the country’s transition to the new tax regime seamless and convenient. A total of 100 GST training centres across the nation were launched along with the training curriculum,” the official release stated.

Skill Development Minister, Rajiv Pratap Rudy, while speaking on the occasion, shared that the new training course would cater to the need of GST-trained professionals to help businesses in areas, such as registration and calculation of tax liability under the new tax regime. “It will be implemented in 14 states. In the next six months, two lakh people will get complete training on GST,” he said.

The 100 centres offering the training courses, were digitally inaugurated by Rudy along with Water Resources Minister, Uma Bharti; Oil Minister, Dharmendra Pradhan; Health Minister, J P Nadda; Textiles Minister, Smriti Irani; and Rural Development Minister, Narendra Singh Tomar.

The ministry also unveiled a national portal for assessors and trainers in addition to 51 new PMKVY centres. With this, the total number of PMKVY centres has increased to 200.

“This year, we will be focussing extensively on quality. Our schemes and programmes have to orient themselves to seeking regional balance so that maximum number of people can reap the benefit and add to their personal and the country’s economic growth,” Rudy said during the event.

The Ministry also inaugurated 100 yoga training centres on the same day.

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The Ministry of Finance has finally put an end to all speculations on Goods and Service Tax on perks for employees.

The government on Monday released an official statement which says that gifts and perquisites given by companies to their employees will be taxed under GST. However, such gifts and perquisites of value up to Rs 50,000 per year will stay outside the ambit of GST.

The statement says gifts of value more than Rs 50,000 per year made without consideration are subject to GST, when made in the course or furtherance of business.

So what constitutes a gift or a perk? The Ministry of Finance has clarified that gift has not been defined under GST law. However, 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.

The services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods nor supply of services). It follows therefrom that supply by the 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 (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that 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.

Even for free housing to the employees, and the same being mentioned in terms of the contract between the employer and employee and a part and parcel of the cost-to-company (C2C), the GST will not be applicable.

This implies that while free housing, and other facilities such as cars for official use, free meals, gym and such other amenities provided to employees as part of  the employment contract, will not be taxable under GST, the Diwali bonus which is voluntary, will come under GST if the same crosses the Rs 50,000 figure.  

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