A clarification issued by the Indian Government Central Board of Indirect Taxes and Customs (CBIC), indicated that a wide range of benefits such as free beverages, canteen facilities, free parking space, journal subscriptions or even group medical insurance provided by business entities to its employees in terms of a contractual agreement between the two, will not be subject to Goods and Services Tax.
The term ‘contractual agreement’ has been used, and this could have wide application and cover HR policies in general.
Tax experts provided an example - free food provided to all employees, which do not form part of an employment contract, but is a general corporate policy, can also be argued to be covered as part of employment contract. Most contracts state that an employee will be covered by policies issued from time to time and shall qualify as not subject to GST.
HRPI View: We understand that some companies recover nominal sums from employees, for transport or canteen facilities, or both, among others. This is then passed on to the third-party service providers. HR of such companies need to additionally clarify, whether this amount will be subject to GST.