March 21, 2023

Taxability of personal use of asset by employee under GST

Goods and Services Tax (GST) is a comprehensive indirect tax that has been introduced in India to replace various indirect taxes like VAT, excise duty, service tax, etc. GST is applicable on the supply of goods or services and is levied at each stage of the supply chain. However, there are certain transactions that are exempted from GST. One such transaction is the personal use of assets by employees. Let’s understand the taxability of personal use of assets by employees under GST.

1.Personal Use of Asset by Employee:

Personal use of asset by an employee refers to the use of an asset owned by the employer for personal purposes by the employee. For example, if an employee uses a company car for personal purposes like commuting to office, shopping, etc., then it would be considered as personal use of asset.

2.Taxability under GST:

According to the GST law, personal use of assets by employees is considered as a ‘supply’ under GST. As per Section 7 of the Central Goods and Services Tax Act, 2017, “supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.”

Since personal use of asset is a supply under GST, it is subject to tax. However, the value of personal use of asset would be determined as per the valuation rules prescribed under GST law.

3.Valuation Rules for Personal Use of Asset:

The GST law provides for different valuation rules for personal use of assets by employees depending on the nature of the asset. Let’s understand the valuation rules for different assets.

A.Motor Vehicles:

If a motor vehicle is used for personal purposes by an employee, then the value of personal use of asset would be calculated as per the prescribed formula. The formula is as follows:

[(A - B) x C]/D


A = Cost of the vehicle including taxes and insurance

B = Amount recovered from the employee for such use

C = Rate of depreciation (as per Income Tax Act)

D = Total number of days in a year

B.Other Assets:

For assets other than motor vehicles, the value of personal use of asset would be the higher of the following two values:

a) 5% of the cost of the asset

b) Rent or fair value of the asset if it is rented or leased out

Personal use of assets by employees is a common practice in most organizations. However, it is important for employers to understand the tax implications of such transactions under GST. Employers must ensure that the value of personal use of assets is calculated as per the prescribed valuation rules and tax is paid accordingly. This would help organizations avoid any penalties or legal issues related to GST compliance.

4.Provision for Levy of GST:

Goods and Services Tax (GST) is a consumption-based tax that is levied on the supply of goods or services in India. The GST regime was implemented on July 1, 2017, and has replaced multiple indirect taxes like excise duty, service tax, VAT, etc. Let’s understand the provision for levy of GST in India.

Levy of GST:

The GST is levied at every stage of the supply chain, i.e., from the manufacturer to the end consumer. It is a destination-based tax, which means that the tax revenue is collected by the state where the goods or services are consumed. The GST is levied on the value of the goods or services, which includes the cost of production, transportation, and other expenses.

The GST is applicable to all businesses, irrespective of their turnover, except for those who are exempted under the GST law. Businesses with an annual turnover of up to Rs. 20 lakhs (Rs. 10 lakhs for special category states) are exempted from GST registration.

Benefits of GST:

The implementation of GST has brought about several benefits for businesses as well as consumers. Some of the benefits of GST are:

A.Simplification of taxation:

The GST regime has simplified the taxation system by replacing multiple indirect taxes with a single tax.

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