Employees may lose out on a part of the salary due to a restructuring of their pay package. This is because the Advanced Authority Ruling (AAR) from Kerala has ruled that any reimbursement from the employee to the employer may be chargeable to GST. Experts fear employers may soon consider stopping in-house supply causing discomfort to employees.
The implications of ruling may be discussed in the next meeting of the GST Council. AAR ruled that the food charges are subject to GST rates.
Archit Gupta, Founder & CEO ClearTax, say, “After the Advanced Authority Ruling from Kerala, it can be said that any reimbursements from the employee to the employer may be chargeable to GST as the employer provides the services to the employee not as a business activity but just for the use of the employee.”
He explains that the deciding factor here is two-fold – 1. Is the employer providing any supply that is not their business activity? 2. Is the employer recovering the expenses from the employee? If both above are answered in affirmative, there could be a GST implication on that supply.
Under the pre-GST era, when an employer provides services to the employee for consideration it was considered as service. However, various exemptions were available. For example – The government of India issued the notice whereby services in relation to supply of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 was exempted under the Service Tax Law.
The AAR ruled, “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 services under GST.”
In order to avoid GST the companies may stop charging for the supplies, which in turn have an impact on the salary structure of the employees. Experts say, given the development, salary structure might be reconsidered or facilities such as canteen services might be taken back.