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A specific exemption was notified under service tax for services rendered by an employee to an employer. Employees all over the country should be relieved that the same exemption has been continued as the opening entry in Schedule III of the Central Goods and Services Tax (CGST) Act — services by an employee to the employer in the course of or in relation to his employment shall never be treated as supply of either goods or services.

As far as the employer is concerned, Schedule I of the CGST Act states that gifts not exceeding Rs 50,000 in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. There was some confusion in interpreting this clause. The Ministry of Finance has issued a clarification through a press note that reads as follows:

“It is being reported that gifts and perquisites supplied by companies to their employees will be taxed under GST. Gifts up to 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.”

The question arises as to what constitutes a gift. Gift has not been defined in the GST law. 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. Another issue is the taxation of perquisites.

It is pertinent to point out here that 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 or supply of services). It follows there from that the 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 or 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.

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).

At a time when the government is issuing a plethora of notifications and circulars under GST, the reason for issuing a press note to clarify this issue is not clear. Taxpayers would prefer to have a notification or a circular that they can refer to and quote when necessary.

Yet, the press note does not resolve the issue completely. The HR departments of companies are going to maintain they every payment received by an employee from an employer arises from the employer-employee relationship.

The press note mentions that providing membership of a club, health and fitness centre free of cost or providing free housing would not be taxable. These supplies would not be taxable in any case since the inclusive definition of supply uses the word for a consideration.

An issue that arose during the last stages of the erstwhile service tax regime was that the tax department was under the impression that buyout of the notice period was a service that was rendered by the employer to the employee.

The reasoning they gave for this was the strangely worded “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act”.
No definitive conclusion was reached on this during the service tax era. This sentence has been repeated in Schedule II to the CGST Act as a supply of services – this would mean that this issue may arise again under GST.

The press note clarifies 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.

A stand can be taken here that even a buyout of a notice period is as per the terms of a contractual agreement between the employer and the employee and hence would not be eligible for GST.
Since the advent of GST, the government has gone on an advertisement blitzkrieg propagating the positive aspects of the law. A number of questions are also being answered through the notifications, circulars, press notes, advertisements, twitter feeds and public announcements.

It would appear that there is an overdose of information through various channels. Some of the responses given on Twitter are being questioned as being incorrect. Since the issues under GST are not going to vanish overnight,

 

the Central Board of Excise and Customs (CBEC) would do well to stick to the notification/circular route to clarify various issues.

The CBEC should come out with a master circular that clarifies the taxability or otherwise of all possible transactions that could take place between an employee and an employer. The press note does not help one to understand what could be considered to be a gift.

Employees who have car leases from their employers are already having to take a hit in their take-home pay due to the increase in the rate of taxes on car leases. The HR departments would do well to take a relook at their employment contracts.

They may want to include all payouts and benefits to employees under the umbrella of cost-to-company in order that no transaction takes the colour of a gift in excess of Rs 50,000. They would need to balance between incentivising employees through innovative means and ensuring that the transaction does not meet the definition of supply.

While many existing indirect tax payers have got provisional GST numbers, there are a few who haven’t. Well, www.gst.gov.in asks them not to worry. Because, the tax department says:-

 

Your present registration position under GST What action should you take?
If you are a Taxpayer having received Acknowledgement Reference No You should be able to download the Provisional Registration Certificate from “Download Certificates” at GST website from 27th June 2017.
If you are a Taxpayer, who has saved the enrolment form with all details but has not submitted the same with DSC, E-Sign or EVC You will receive the ARN at your registered email ID, if the data given are successfully validated after 27th June 2017.In case of validation failure (data like PAN not matching), you should be able to login at the same portal from 27th June 2017 onwards and correct the errors. You can refer the registered email for details of the errors.
 If you are a Taxpayer, who has partially completed the enrolment form You can login at the portal on the above mentioned date and complete the rest of the form
If you are not an existing Taxpayer and wish to register newly under GST You would be able to apply for new registration at the GST portal from 25th June 2017.

 

www.gst.gov.in also states that enrolment window will reopen on 25th June 2017 and continue for 3 months as per Rule. We are not sure what Rule this is but should take comfort in the fact that the enrolment window is going to be open for three months. Another terse clarification from the portal is

“Also note that your provisional ID will be your GST Identification Number (GSTIN)”

The above clarifications force us to seek more clarifications. A few are listed below:

 

  1. If my provisional ID is my GSTIN, will I ever get a GST REG-03 and GST REG-06?
  2. Assume that I register on 10th August 2017 though I am supposed to register prior to the appointed day, what happens? Should I file my returns for June and July? Will I be penalized for late registration?
  3. Can we assume that there will be no window open for registration three months after 25th June 2017? What if I cross the magic number of Rs 20 lakhs on 20th December 2017?
  4. I have registered but my vendor has not been able to register because he is a small trader and has had difficulties in registering. Is there a way out for me to avoid paying tax on reverse charge?
  5. More clarity is needed on registering as a casual taxable person? Would anyone who carries on business in another State apart from the one in which he is registered need to register as a CTP?
  6. What is the process of correcting errors in my Registration Certificate?

 

It is apparent that there are no definite answers to any of these questions right now. We can expect some Notifications and Clarifications soon. Keep watching this space for all the latest!

 

As a law, GST has been structured on the fundamental principle of matching of invoices. The GST portal will do the matching and intimate both the parties with mismatch reports. One of the harshest provisions in the GST law is the one which states that if the mismatch that has not intimated is not rectified in the return for the next month, it will be added to the output tax liability. As a concept, when matching has not worked very well even for exciting areas like matrimony, one wonders how it would work with unexciting areas such as invoices. It is too early to slap the taxpayer with a tax liability within a month for the mistake of his counterparty. The GST Council would do well to retain the provisions for matching of invoices but defer the provision to add the mismatch to the tax liability of the supplier in the next month.

One look at the Mismatch report which form a part of the Rules is bound to put off anyone. This is how the complete form looks:

However, if we take a closer look at the form, we notice that it is broken up into four areas:

  • Finally Accepted Input Tax Credit
  • Mismatches/Duplicates that have led to increase of liability in the return for September filed by 20th October
  • Mismatches duplicates that will lead to increase of liability in the return for October filed by 20th November
  • Mismatches/Duplicates that may lead to increase of liability in the return for November to be filed by 20th December

The best part? It appears that all the columns will be autopopulated! Apart from this critical piece of information, everything else is mentioned in the format!
Considering the fact that GST is heavily dependent on forms, the CBEC should start providing detailed instructions on how to fill forms.

With the appointed day for GST nearing, all taxpayers should be preparing themselves to transition to the new regime. How is life going to be under GST?

While we still do not know the most important part of GST, the rates of GST that would be applicable to individual goods and services, we have a broad idea about the possible rates.

 

 

 

 

Being a tax that is based on technology, life in the GST era would be spent in front computer screens than in tax offices. There appears to be no limit to the number of forms that a taxpayer has to file under GST- there is a form prescribed for every conceivable act under GST. Filing of all these forms would require an enormous amount of patience. There will be problems in technology too- the portal could hang, there can be difficulties in filling particular columns in forms and such like. Many of such compliance issues can be tackled through a GST garage.