Bonus reimbursement in canteen services taxed at 5% when no commission retained, 18% on commission portion

AAR Telangana ruled on GST classification for bonus reimbursement in canteen services. If the service provider retains no commission from bonus payments received from service recipients for employee distribution, the entire bonus amount is taxed at 5% as part of canteen services consideration. However, if the provider retains commission as an intermediary, GST applies at 18% on the commission portion and 5% on the remaining bonus amount. The ruling clarifies that bonus payments constitute part of the taxable value for canteen services when no intermediary commission is retained.

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Issues Involved:
1. Rate of GST for reimbursement of bonus.
2. Applicability of the same GST rate for bonus reimbursement as for the main canteen service.
3. Basis for charging 5% GST instead of 18%.

Summary:

Issue 1: Rate of GST for Reimbursement of Bonus

The applicant, M/s. Foodsutra Art Of Spices Private Limited, provides canteen services and receives a lump sum bonus for paying their employees. The applicant charges 18% GST for the bonus, while the service recipient insists on 5%. According to Section 9(1) and Section 15 of the CGST Act, 2017, the value of supply includes all payments made in relation to the supply of services. Since the bonus is related to the canteen services, it forms part of the supply value and is taxable at the rate applicable to canteen services. Therefore, the ruling states that the GST rate for the bonus reimbursement is 2.5% CGST and 2.5% SGST.

Issue 2: Applicability of the Same GST Rate for Bonus Reimbursement as for Main Canteen Service

The ruling clarifies that the amounts received as a bonus are in relation to the canteen services provided. As per the definition of "Restaurant service" in Notification No. 11/2017, the bonus forms part of the value of supply for canteen services. Therefore, the same GST rate of 2.5% CGST and 2.5% SGST applies to the bonus reimbursement.

Issue 3: Basis for Charging 5% GST Instead of 18%

The ruling explains that if the applicant retains a portion of the bonus as commission, the GST rate on the commission is 18%, while the rest of the bonus amount is taxed at 5%. If no commission is retained, the entire bonus amount is taxed at 5%. This is based on the combined reading of Section 15 and the definition of consideration in the CGST Act, 2017, which states that all payments made in respect of a supply constitute the value of supply on which tax is levied.

Conclusion

The Authority for Advance Ruling concluded that the GST rate for the reimbursement of the bonus is 2.5% CGST and 2.5% SGST. The same rate applies to the bonus reimbursement as for the main canteen service. The basis for charging 5% GST instead of 18% is detailed in the provisions of Section 15 and the definition of consideration in the CGST Act, 2017.

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