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Supply between Employer and Employee
Facts
The Executive Director, as part of his salary and perquisites under the employment agreement, was eligible for a voucher worth Rs.5 lakh, redeemable at any hotel property of the company in India. The voucher was used by the Executive Director for the stay of his family in a company owned hotel in Udaipur, Rajasthan. The total amount charged from the Executive Director was Rs.25 Lakhs. The voucher value of Rs. 5 lakh was deducted from such amount at the time of payment.
Question:In relation to the stay of Executive Director’s family in the company owned hotel in Udaipur, Rajasthan, value of supply of accommodation services provided by the Hotel Division is:
(a) Rs. 25 lakh
(b) Rs. 20 lakh
(c) Supply of services by employer to employee is not a taxable supply under GST.
(d) Rs. 5 lakh
Answer: Rs. 25 lakh (Explanation is given in the end of the Questions)
Question-2: In case, Voucher would have been used by the Executive Director for his use? Taxability in that case
(a) Rs. 25 lakh
(b) Rs. 20 lakh
(c) Supply of services by employer to employee is not a taxable supply under GST.
(d) Rs. 5 lakh
Answer: Rs. 25 lakh (Explanation is given in the end of the Questions)
Question-3: In case, Company provides Free Stay of three days to the Executive Director as a perquisite as part of Employment. Value of such three Days is Rs. 5 Lakhs. Taxability
(a) Not Taxable due to Schedule-III (Employer-Employee)
(b) Rs. 5 Lakhs
(c) Supply of services by employer to employee is not a taxable supply under GST.
Answer: Not Taxable due to Schedule-III (Employer-Employee) (Explanation is given in the end of the Questions)
Question-4: In case, Company provides Free Stay of three days to the Executive Director as Free Gift, Not as part of Employment. Value of such three Days is Rs. 5 Lakhs. Taxability
(a) Not Taxable due to Schedule-III (Employer-Employee)
(b) Rs. 5 Lakhs
(c) Supply of services by employer to employee is not a taxable supply under GST.
Answer: Rs. 5 lakh (Explanation is given in the end of the Question
Question-5: In case, Company provides Free Stay of three days to the Executive Director as Free Gift, Not as part of Employment. Value of such three Days is Rs. 40 Thousands. Taxability.
(a) Not Taxable due to Schedule-III (Employer-Employee)
(b) Rs. 40 Thousands
(c) Supply of services by employer to employee is not a taxable supply under GST.
(d) Non Taxable due to exception given in Schedule-I.
Answer: Non Taxable due to exception given in Schedule-I.
Explanations
General Rules of GST Taxability in respect of Employer and Employee
Services by Employee to Employer is not part of GST due to Schedule-III.
As a general rule, Supply of Goods/Services by Employer to Employee is not outside of GST. For instance, Employee of Tata Motors purchase car of Tata. In this case, GST needs to be discharged by Tata Motors on Sale of Tata Car to the Employee.
As per Schedule-I, Supply between Related Persons even without consideration is taxable. Since, Employee is also a related person as per Section-15, any Supply of Goods & Services by Employer to Employee is also Taxable. However, Free Gifts by Employer to Employee up to Rs. 50,000 in a Financial Year is not taxable.
Further, as clarified by the Circular:172/04/2022-GST (Question-5), any perquisite provided by the Employer to the Employee as part of Employment Contract is outside the ambit of GST in terms of Schedule-III.
Free Gift means which is voluntary, not as a contractual obligation, generally adhoc not regular. Employee can not demand Gift as a matter of right from the Employer.
Accordingly: Explanations to the Questions
In First & Second Question, since here though voucher is provided as part of Employment Contract but it is not a perquisite rather form of consideration (instrument of voucher which can be used even by his family), accordingly, it is taxable.
However, it is to be noted that Supply of Voucher is not taxable due to Employer-Employee relation, rather supply of hotel accommodation Service is taxable for which voucher is being used as a mode of payment.
In Third question, since it is provided as a perquisite, it is not taxable.
Fourth & Fifth, where Gift is of more than Rs. 50,000, it is taxable, other wise Not.
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Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions surrounding the issue purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
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