Now reimbursement of expenses from employee will attract GST

Introduction

If you are a salaried employee and you think that GST is only for the business, then you might have to think again. The GST has become so vast that now it is spreading his wings even to affect the salaried employee.

Very recently, the Authority of Advance Ruling (AAR) in Kerala has ruled that the canteen expenses reimbursed by the employee will attract the GST. This judgment has created havoc in the industry.

One may think that the judgment might only be on the canteen expenses, but the interpretation of the judgment will all affect all others reimbursement as well and this may result into the additional cost to the employer which will ultimately be passed on to the employee by way of higher deduction.

What was the judgment all about?

The applicant was a Company which provides canteen services to his entire employee and deducts the food expenses from their salaries. The Company do not earn anything out of the deduction and hence claimed that no GST will be applicable on the same.

However, on the contrary, the Court ruled that since the company is providing food services, it shall be treated as a supply of services and in return they are deducting the consideration from the salary and hence, all the conditions for GST are fulfilled and therefore there is no reason why GST should not be levied.

Read: The Complete judgment

Impact of the judgment

The order of the AAR is off serious consequences. The order will increase the compliance burden on the company and may also lead to a reduction in earnings or facilities to the employee.

Also, the company might also stop charging for the services directly and may reduce the salary packages to save tax. Hence, ultimately it is the employee who will gonna suffer.

Whether all reimbursement will be taxed?

Yes, as per the interpretation of the judgment, it looks like that every reimbursement will attract GST since it fulfills all related conditions for the levy of GST. It may include rental reimbursement, telephone charges, medical expenses etc.

How can employees save themselves from the clutches of GST?

Employees should make sure that no part of their salary should include reimbursement. Further, if it includes, then they should speak to their HR department and get it changed so that the burden of GST would at least not fall upon their shoulders.

Any relief from the GST council

If one can track the mood of the government, it is hardly expected that government will intervene in this case and issue any sort of exemption notification. This is because the government wants to increase the tax revenue.

However, the government will not ignore this judgment and will take cognizance in the next GST council meeting. Let’s keep the finger crossed and expect the government to provide some relief in this regard.

For any other information, please email us at info@hubco.in.

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