Taxability of Personal Use of Asset by Employee under GST

Goods and Services Tax (GST) is one of the most significant indirect tax reforms in India. Under GST rules, the taxability of personal use of assets by employees has been a topic of debate. It is essential for business owners and startup founders to understand the GST provisions related to personal use of assets by employees to ensure compliance with the GST regulations.

What is Personal Use of Asset by Employee?

Personal use of an asset by employees refers to the use of company assets, such as a car or mobile phone, for personal purposes. The employee may use the asset for both business and personal purposes, which makes it challenging to determine the taxability of personal use of assets by employees under GST.

Taxability of Personal Use of Assets by Employees under GST

The taxability of personal use of assets by employees under GST depends on the nature of the asset and the agreement between the employer and the employee. The GST provisions related to the personal use of assets by employees are as follows:

Input Tax Credit (ITC) Not Available: If the employer provides an asset such as a car or mobile phone to the employee for personal use, the input tax credit (ITC) is not available to the employer. This means that the employer cannot claim the GST charged on the purchase of the asset as a tax credit.
Value of Personal Use to be Included: If the employer provides an asset such as a car or mobile phone to the employee for personal use, the value of personal use is to be included in the employee's income. The value of personal use is to be calculated based on the actual expenses incurred by the employer for the asset's maintenance and running.
Applicability of GST on the Value of Personal Use: The GST is applicable on the value of personal use of the asset by the employee. The employer is required to calculate the GST based on the applicable GST rate on the asset's maintenance and running expenses.

Calculation of Input Tax Credit

The calculation of input tax credit (ITC) for the employer in case of personal use of assets by employees is as follows:

ITC = (Total GST paid on the asset purchase - GST on the value of personal use)

For example, if the employer purchases a car for INR 10 lakhs with a GST of INR 1.5 lakhs, and the value of personal use is INR 3 lakhs, the input tax credit will be INR 1.2 lakhs.

Conclusion

Understanding the taxability of personal use of assets by employees under GST is crucial for small and medium business owners and startup founders in India. The employer must include the value of personal use of assets in the employee's income and calculate the applicable GST based on the maintenance and running expenses. The input tax credit for the employer will be calculated based on the total GST paid on the asset purchase and the GST on the value of personal use.