Gifts to Employees under GST

It is a common business practice to give gifts to employees, especially on the occasion of festivals like Diwali, New Year, etc. In addition, companies provide various perquisites to employees, such as housing, laptops, conveyance, health insurance, etc. In the previous indirect tax regime, these gifts were not taxable under VAT or Service Tax. Let us understand the treatment of gifts to employees under GST.

What are gifts?
Gifts have not been defined in the GST Law. However, the Finance Ministry has issued a notification which states that a gift is given without any consideration in return, is voluntary and is made occasionally. It cannot be demanded as a matter of right and an employee cannot move a court of Law for obtaining a gift.

Gifts to employees under GST

No input tax credit
An employer cannot avail input tax credit on goods given as gift to employees under GST.

Gifts of value more than Rs. 50,000 in a year are taxable
Gifts to employees, that exceed Rs. 50,000 in value in a financial year, are taxable under GST.
Example: Radha Electronics gifts mobiles worth Rs. 55,000 to senior employees on Diwali in the year 2017.
This will be treated as a supply under GST and Radha Electronics is liable to pay GST @ 12% (Rate applicable to mobile phones) of Rs. 55,000, which is Rs. 6,600, on each mobile phone given as gift.

Gifts which are part of employment contract are not taxable
Gifts which are part of the employment contract between an employer and employee are not taxable under GST. Hence, perquisites such as free housing, gift vouchers, conveyance, membership of clubs, health and fitness centre, etc. which are usually part of the employment contract will not be taxable under GST.