23.06.2022: GST Council likely to take up taxation of perquisites, consider new rule for interest computation on delayed payment

The GST Council is likely to clear the air on perquisites taxation and interest calculation for delayed payment of tax, among others, in its meeting scheduled to take place next week in Chandigarh.

Here, perquisites refer to benefits provided in cash or kind by an employer to employer and are part of the employee’s cost to company (C2C). These could include free membership of a club, health and fitness centre or free housing, car with driver and so on. A senior government official said doubts have been raised regarding taxability, so the “Law Committee has recommended a draft circular to be considered by the GST Council to bring more clarity on this issue.”

According to the official, the clarification is likely to say that perquisites provided by the employer are in lieu of the services provided by the employee in relation to his employment. Hence, “they will not be subject to GST, as the same are provided in terms of the contract between the employer and employee.”

This is based on a provision under schedule III to the CGST Act, which provides that “services by an employee to the employer in the course of or in relation to his employment” will not be considered as supply of goods or services and, hence, GST is not applicable.

Interestingly, the Central Board of Indirect Taxes & Custom (CBIC), in a press release dated July 10, 2017, had said services provided by an employee to the employer in relation to his employment are outside the scope of GST (neither supply of goods or supply of services). It follows that supply by the employer to the employee in terms of a contractual agreement entered into between the employer and the employee will not be subject to GST. Still, there are some doubts on this issue, which have necessitated clarification.

Interest calculation

The official also said the Council may consider a new rule (88B) to be inserted in the CGST Rules 2017 for calculation of interest on delayed payment of tax and computation of interest on input tax credit (ITC) wrongly availed of and used. “The act says the manner of calculation of interest has to be prescribed through rules. However, the rules are yet to be prescribed,” the official said, explaining the need for a new section.

The proposed rules are expected to prescribe calculation of interest on the amount of unpaid tax from the date from which such tax is due to be paid. Also, interest will be calculated on the amount of ITC wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed ITC, till the date of reversal of such credit or payment of tax in respect of such amount.

Source: The Hindu Business Line

Register Today