The move may be necessitated following the recent Authority of Advance Ruling (AAR) ruling.
New Delhi: Companies may restructure the reimbursement component of employees’ salary to make sure that the said part does not attract Goods and Services Tax (GST), a financial daily has reported.
The Economic Times has said that these reimbursements components may include those on “home rentals, telephone charges beyond a certain limit, medical premiums for extra coverage, health check-ups, transportation” among other benefits that could come under the GST ambit.
ET quoting tax experts said that the move may be necessitated in the wake of the recent Authority of Advance Ruling (AAR) ruling that the GST will be levied on recovery of food expenses from employees for canteen services.
The Kerala bench of the AAR in its order last week said that recovery of food expenses from the employees for canteen services provided by a company are taxable as a supply of service under the Goods and Services Tax (GST).
The ruling was given by the AAR on an application filed by Malappuram-based Caltech Polymers. The company approached the AAR to seek advance ruling on whether recovery of food expenses from employees for canteen services would come under definition of outward supplies and attract the GST.
“… recovery of food expenses from the employees for the canteen services provided by company would come under the definition of ‘outward supply’ as defined in Section 2(83) of the Act, 2017, and therefore, taxable as a supply of service under GST,” said the AAR order.
Under the Factories Act, 1948, any factory employing more than 250 workers is required to provide canteen facility to its employees.
Levying of GST on canteen services provided by employers to employees would increase the compliance burden of companies, PwC Partner and Leader Indirect Tax Pratik Jain told PTI.
The government, Jain said, should either provide some guidance on such aspects or consider providing an exemption from GST on such recoveries.
He further said that it was not clear whether GST would be levied at 5 per cent (without input credit) as canteen shall apply on all such recoveries from employees or a residual rate of 18 per cent will be applicable, treating it as outdoor catering services.
In the first week of this month, the finance ministry had clarified that a 5 percent GST will be levied on food and drinks supplied by the Indian Railways or IRCTC in trains, platforms or stations.
This was done to bring uniformity in the rate of GST applicable to supply of food and drinks made available in trains, platforms or stations.
With PTI Inputs