Transportation Facilities Provided to Employees-GST Implications

To build the strong relationship with the employees, the company provides many facilities to their employees like canteen facilities, accommodation services, transportation facilities and many other facilities. In this respect the nominal amounts are being charged by the company from their employees in form of consideration. Hence the common question that usually arises here is that whether the GST would be applicable on such nominal amount recovered from the employees. Suppose a company has provided the transportation services to their employees and availed the bus service from the Bus operator and paying the lumpsum amount to the bus operator on monthly basis. The company is also recovering a nominal amount from their employee for such transport facilities. Now, the question that arises here is that whether the GST would be applicable on such nominal amount recovered from the employees and whether the ITC would be available to the company in respect of the GST paid on the tax invoice issued by bus operator. In this article we will try to find the answers of these questions.

For a transaction to be covered under the GST it is necessary to examine whether such transaction is covered under the scope of supply as defined in section 7 of the CGST Act, 2017. As per section 7, supply means all forms of 'supply of goods/services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

 As the consideration is being charged from employees, can we consider such transaction as supply by the employer to employees and charge GST for such services? The same was also clarified in serial number 5 of para 2 of Circular No. 172/04/2022 that the perquisites provided by the employer to its employees in terms of the contractual agreement entered into between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment. It follows there from that perquisites provided by the employer to the employee in terms of contractual agreement entered into between them will not be subjected to GST when the same is provided in terms of the contract between the employer and employee.

The CBIC vide the Press Release dated 10.07.2017 with the description "GST on gifts", clarified that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods nor supply of services). It follows that supply by the employer to the employee in terms of contractual agreement of employment (part of the salary/CTC) is not subject to GST. The above press release makes it clear that any benefit provided to the employees as part of employment contract would not be subjected to tax under GST.

Thus from the above it is clear that GST would not be applicable on the nominal amount recovered from the employees.  As far as the question of ITC in respect of bus service is concerned in this respect it is important to know that section 17(5) blocks the ITC in respect of motor vehicles for transportation of persons having seating capacity of not more than thirteen persons (including the driver), except when they are used for making the further supply of such motor vehicles or transportation of passengers or imparting training on driving such motor vehicles.

Hence the ITC would be available in respect of bus hiring charges paid to the bus operator subject of the condition that seating capacity of bus should be more than 13 persons (generally the bus has the seating capacity more than 13 persons). However, in case the nominal amount is recovered from employees hence the ITC would not be available to that extent only.

The Hon’ble High court of Bombay in the case of CCE Nagpur vs Ultratech Cements Ltd [2010(10)LCX0021] wherein it was held that, credit is not admissible to manufacturer on part of cost borne by worker and proportionate credit embedded in cost of food recovered from employees, needs to be reversed.

There are various advance rulings in this respect that nominal amount recovered from employees are not liable for GST:
1. Brandix Apparel India Private Limited [2023(03)LCX0092(AAR)]
The applicant has hired a contractor for providing transportation services to the employees of the company transport services per employee per month. Out of the total transportation expense charged by the transporter, the applicant recovers some amount from employees and the balance cost is paid by the applicant.

The applicant raised a question that whether GST would be applicable on the amount recovered from employees for transportation facilities provided to them. The Andhra Pradesh Authority for advance ruling in this case observed that that any perquisites provided by the employer to its employee in are in lieu of the services provided by the employee to the employer in relation to the employment and therefore the perquisites provided by the employer to the employee will not be subjected to GST. Therefore it was held that the applicant is not liable to pay GST on the recoveries from the employees for the canteen services provided to them.

2. Tata Motors Limited [2020(08)LCX0118(AAR)]
The applicant has engaged service providers to provide transportation facility to its employees, in Non-AC buses  and nominal amount is recovered on monthly basis.

The applicant raised the following two questions:
1. Whether ITC available on GST charged by service provider on hiring of bus for transportation of employees and whether it will be restricted to the extent of cost borne by the applicant (employer).

2. Whether GST is applicable on nominal amount recovered by applicants from employees for usage of employee bus transportation facility in non-air conditioned bus.

The Maharashtra Authority for advance ruling in this case held that the ITC would be applicable to the applicant. However, ITC would not be available to the extent of cost recovered from employees and GST is not applicable on nominal amount recovered by applicants from employees for usage of employee bus transportation facility in non-air conditioned bus.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.