Question

impact of get on Indian economy

Answer 1

On 1 July, India ushered in the biggest post-independence tax reform with euphoria coupled with anxiety.

It remains to be seen what impact the Goods and Services Tax (GST) will have on the Indian economy in the long run.

While much has been said and written about its impact on corporate entities, it would be interesting to look at key areas for consideration during the course of business under an employer-employee scenario.

GST is levied as a tax on supply of goods or services. Thus, the question arises whether GST can be levied on the provision of services by an employee to the employer. The GST law provides a specific exclusion of services rendered by an employee to an employer in the course of or in relation to his employment.

Interestingly, supply of goods or services, or both, by a related party without consideration and made only in the course or furtherance of business is subjected to GST and an employee is deemed to be a related party of the employer.

As a consequence, an issue has arisen as to whether gifts and perquisites provided free of charge by an employer to an employee can be subjected to GST.

The ministry of finance, in a statement dated 10 July, clarified that gifts of value exceeding Rs50,000 made without consideration is subject to GST when made in the course or furtherance of business.

‘Gift’ has been defined as one made without consideration, voluntary in nature, and made occasionally.

Further, it cannot be demanded as a matter of right by the employee and a court of law cannot be approached for obtaining a gift. Additionally, the statement clarified that no GST would be levied in case perquisites are provided free of charge to all employees, subject to the condition that the employer eventually pays appropriate GST.