Be cautious: Recovery by Employer from Employee is liable for GST

An analysis of all AAR ruling may give an idea that everything is liable for GST. There is a recent ruling by AAR which provides that GST is applicable on recoveries if any made by an employer from its employees such as Notice pay, Group insurance , telephone bills etc.

The AAR reading convey that even if any employer takes a group insurance policy for its employees and recovers a part of the premium from the employee then as per this AAR ruling as a GST dealer the employer is providing services to its employees and hence is liable to pay GST on the amount being recovered from its employees which in turn will mean that such GST will be recovered by employer from its employees. Similarly, recovery of mobile telephone bills and notice pay from employees by the employer will be considered as service provided by the employer to its employees and hence liable for GST.

In short, the final impact of this AAR ruling will be that employers will recover these amounts from employees along with GST resulting in extra cost to each of the employees.

Now as a planning measure, the employer needs to stop the welfare measures through its vehicle. It is now required to stop taking group insurance/ providing mobile phone facility etc to its employees at subsidised cost so as to avoid the impact of the GST.

It may be noted that the “trigger point” for applicability of GST is “Supply”.  The views adopted by the AAR are too Hyper-technical. The pre-dominant relationship is between employer and employee. The relationships being that of employer – employees is not a service liable for GST under the GST Act is an accepted fact

As services provided by an employee to its employer is outside the ambit of GST, such recoveries are only part of that relationship and hence should be outside the ambit of GST.