News Update

Income tax hands over Rs 1700 Cr tax demand to Congress PartyGST - Neither SCN nor the order spell out the reasons for retrospective cancellation of registration, hence cannot be sustained: HCStage-2 of Vikram-1 orbital rocket successfully test-firedGST - Non-application of mind - If reply was unsatisfactory, details could have been sought - Record does not reflect that such exercise was done - Matter remitted: HCHouthis claim UK has not capability to intercept their hypersonic missilesGST - Merely because a taxpayer has not filed returns for some period does not mean that registration is required to be cancelled with retrospective date also covering the period when returns were filed and taxpayer was compliant: HCIsraeli forces kill 200 Palestinians at Gaza medical complex & arrest over 1000GST - Petitioner's reply, although terse, is not taken into account while passing assessment orders - Petitioner put on terms, another opportunity provided: HCUnveil One Nation; One Debt Code; One Compliance Rule for Centre & StatesChina moves WTO against US tax subsidies for EVs & renewable energyMore on non-doms - The UK Spring Budget 2024 (See TII Edit)Notorious history-sheeter Mukhtar Ansari succumbs to cardiac arrest in UP jailTraining Program for Cambodian civil servants commences at MussoorieNY imposes USD 15 congestion taxCBIC revises tariff value of edible oils, gold & silver45 killed as bus races into ravine in South AfricaCBIC directs all Customs offices to remain open on Saturday & SundayBankman-Fried jailed for 25 yrs in FTX scamI-T- Once the citizen deposits the tax upon coming to know of his liability, it cannot be said that he has deliberately or willfully evaded the depositing of tax and interest in terms of Section 234A can be waived: HCHouthis attack continues in Red Sea; US military shoots down 4 dronesFederal Govt hands out USD 60 mn to rebuild collapsed bridge in BaltimoreI-T - Receipts of sale of scrap being part & parcel of activity and being proximate thereto would also be within ambit of gains derived from industrial undertaking for purpose of computing deduction u/s 80-IB: HCCanadian School Boards sue social media titans for 4 bn Canadian dollar in damagesFormer IPS officer Sanjiv Bhatt jailed for 20 yrs for planting drugs to frame lawyerCus - No Cess is payable when Basic Customs Duty is found to be Nil: CESTAT
 
GST - Treatment of Salary Sacrifices

JUNE 29, 2017

By MK Gupta

The purpose of this article is to examine the liability of GST on 'salary sacrifice'. Presently it is common practice in corporate sector to provide a package of benefits for employee as part of the remuneration package. These benefits include providing laptop, mobile phone, software packages, childcare voucher, car, house, and vouchers to get goods or services. These benefits are provided in lieu of some part of salary being sacrificed by employee.

GST is chargeable on supply of goods or services on the value and is payable by a taxable person. Supply is defined as various transactions made or agreed to be made for a consideration by a person in the course or furtherance of business. To term a transaction as supply, twin test of consideration and business must be satisfied. Business includes any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit. Any transfer of the title in goods is a supply of goods. If there is no transfer of the title in goods, it is a supply of services. For the goods and services used for the purposes of furtherance of business, the taxable person is entitled to input tax credit.

It is proposed to examine the issue from two aspects. First, the taxable person has taken input credit on inputs i.e. on goods or services. Second, the taxable person has not taken any input tax credit or input tax credit is statutorily blocked.

Input tax credit is allowed on supply of goods or services which are used or intended to be used in furtherance of business. Once the credit is taken, goods or services become part of the business assets. They can be used for business purposes only. Permanent transfer or disposal of Goods forming part of business assets even without consideration is deemed to be supply of goods if input tax credit has been taken. Thus, if there are any goods on which credit has been taken and they are given to staff even without consideration it will attract GST. Exception is there for supply of goods of certain value to employees as gifts. Once the input tax credit is taken on goods to be used in business, their further supply to any person will be in furtherance of business only.

In the case of Astra Zeneca UK Ltd v HMRC, ECJ (Case C-40/09) held that the provisions of a retail vouchers by a company, which acquired that voucher at a price including VAT, to its employees in exchange for giving up part of their salary constituted a supply of services effected for consideration. In this case the company was taking input tax credit on vouchers.

Coming to the second situation where the taxable person has not taken any input credit outright or it is barred by law. For example, input credit on cars is not allowed. Input tax credit is allowed on goods or services used or intended to be used in furtherance of business. If the inputs on which credit has not been taken, further supply to anybody shall be deemed to be not in furtherance of business and, therefore, shall be a non-taxable supply.

If the credit is barred by law as in the case of car, the question is whether supply of car to employees in lieu of salary sacrifice will be taxable . It is felt that it should not attract GST as the law provides that any permanent transfer or disposal of goods even without consideration is supply of goods if input tax credit has been taken. It means if input tax credit has not been taken, any disposal would not be supply in the course or furtherance of business. In UK, if the input tax credit is blocked, no output tax is payable. In this regard legal provisions are not clear in GST. To maintain fiscal neutrality which is the hallmark of VAT system, the government should clarify that no GST will be payable on further supply of business assets if input tax credit is not taken.

Questions are being raised whether GST would be payable on goods or services which are being provided in terms of contracts entered prior to GST. Let us examine the case of exclusive use of car being allowed to an employee as a part of salary package. Post GST treatment will depend on the fact how the car has been acquired by employer. If the car has been purchased outright and no credit of excise duty or VAT has been taken, GST would not be attracted. If the car has been acquired on financial lease, there was service tax liability on certain interest portion of the lease rental. On such transaction it is felt no GST liability would be there as interest income is exempted. Hence, if car taken under financial leasing is allowed to be used by an employee, no GST. If the car has been acquired under operating lease, lease rental was liable to VAT and the employer could claim lease rental including VAT as revenue expenditure. In GST, acquisition of car taken prior to GST under operating lease would be considered as supply of service and, therefore, GST would be payable. There appears to no bar of taking input tax credit under GST, however, the GST rate on such supply of service would be equal to that applicable to car. If the input tax credit is taken, GST will be payable on use of such car by employee. If the input tax credit is not taken, it is felt no GST shall be payable. GST paid on lease rental in such a situation would be a cost to the business but there would be some relief in income tax as it can be claimed as revenue expenditure.

From the above analysis it appears that confusion prevails on liability of GST on such supplies as there is no clear statement of law providing that no output tax, if input credit tax is not taken. If output tax is charged on supplies where no input tax credit is taken/allowed, it will be against the spirit of fiscal neutrality which is the heart and soul of VAT/GST.

(The author is IRS(Retd), Former Vice Chairman Settlement Commission; DG Audit CBEC and the views expressed are strictly personal.)

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: Still confusion

With due respect it is to submit that the author has left one important aspect that here the employer is not a service provider. In this case employee is a service provider and Schedule III says that service by employee to employer shall not be treated as neither supply of goods nor service. So how the credit taken by the employer comes to dispute is not clear. In this case the employer is paying the cost of service provided by employee and it may be in cash or kind, but payment shall be covered in the ambit of "furtherance of business" so there should not be any issue for taking credit.



Posted by deepak joshi
 

AR not Afar by SK Rahman

TIOL Tube Latest

Shri Shailendra Kumar, Trustee, TIOL Trust, giving welcome speech at TIOL Awards 2023




Shri M C Joshi, Former Chairman, CBDT




Address by Shri Buggana Rajendranath, Hon'ble Finance Minister of Andhra Pradesh at TIOL Awards 2023