GST on Employee Recoveries : An unending ambiguity

Goods and Services Tax (GST) is a significant indirect tax reform introduced in India. It has replaced multiple indirect taxes such as excise duty, service tax, VAT, etc. GST has brought significant changes in the way businesses operate in India, including Employee Recoveries. Let us understand the impact of GST on Employee Recoveries in detail.

What is Employee Recovery?

Employee Recovery is a process where employees make payments to employers for various purposes. For instance, an employee may pay for the rent of the company-provided accommodation, reimburse expenses incurred on behalf of the company, etc. Typically, employers deduct such payments from the salary of the employees.

What is GST on Employee Recoveries?

The GST law does not provide a specific provision on Employee Recoveries. Therefore, it is unclear whether Employee Recoveries are taxable under GST or not. It has been the subject of many disputes and litigation, with different opinions given by various tax authorities and courts.

How is GST applicable on Employee Recoveries?

According to the GST law, any amount received by a person from another person is taxable if it is in connection with the supply of goods or services. However, in the case of Employee Recoveries, there is no supply of goods or services. Therefore, it is unclear whether GST is applicable on Employee Recoveries or not.

Some tax professionals argue that Employee Recoveries are not taxable under GST, as they are not in connection with the supply of goods or services. They argue that it is merely a payment made by the employee to the employer, and it does not involve a supply of goods or services.

On the other hand, some tax professionals argue that Employee Recoveries are taxable under GST. They argue that such payments are in connection with the employment of the employee, which is a supply of service. Therefore, GST should be applicable on such payments.

What are the different views of the Courts on GST on Employee Recoveries?

The different High Courts in India have given different opinions on the issue of GST on Employee Recoveries. The Bombay High Court, in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. (ICT), held that Employee Recoveries are not taxable under GST. The court held that Employee Recoveries are not in connection with the supply of goods or services and are merely a payment made by the employee to the employer.

On the other hand, the Karnataka High Court, in the case of Columbia Asia Hospitals Pvt. Ltd., held that Employee Recoveries are taxable under GST. The court held that such payments are in connection with the employment of the employee, which is a supply of service. Therefore, GST should be applicable on such payments.

Conclusion

Employee Recoveries are a significant issue under GST, and it is still unclear whether they are taxable or not. The different views of the courts make it difficult for businesses to understand the impact of GST on Employee Recoveries.

It is advisable for businesses to seek expert advice on the issue of GST on Employee Recoveries. It is essential to understand the implications of GST on Employee Recoveries and to ensure compliance with the GST laws.