Employees will not have to bear GST levy, when they partly reimburse the employer company for various facilities such as a canteen food and medical insurance cover provided to them as per a ruling by Maharashtra Authority for Advance Rulings (AAR) Typically a portion of expenses for providing these facilities is recovered from employees as a deduction from salary as per corporate policies. This ruling settles the matter for employees in Maharashtra and it is also expected to have persuasive value for similar issues across the country.
The AAR has held in its ruling that recovery of 50% of the amount of medical insurance premium from employees for covering the health of parents cannot be treated as recovery made towards ‘supply of services’ and therefore no GST will apply.
The applicable rate of GST on medical insurance premium is currently 18%. The Maharashtra ruling was given to POSCO-India Pune Processing Centre. The AAR bench observed that it is the insurance company which is providing the service of insurance and not the employer (company), which is in the business of distribution of steel coils.
Sachin Menon, head of indirect tax at KPMG India said that the same logic shall apply to all third-party service-related recoveries made by the companies from their employees.On the other hand, for companies, the cost of providing these facilities to their employees will increase, as the input tax credit will be denied to them.
AAR also dealt with some other issues. As per the POSCO corporate policy, the managing director and general manager were deputed to the Indian company. As they moved to India, they were provided with rent-free accommodation in hotels instead of cash perquisites. This was included in their salary under the Income Tax Act. The Indian company sought advance ruling on whether it could avail of input tax credit on the hotel stay expenses. The input tax credit was denied on the ground that it was not towards ‘furtherance of business’ and the personnel deputed would have performed their duties, even if they were provided with any other residential accommodation.
