Gifts by employer to employee

[Archna Gupta]

Dear Sir

Please clarify the below three queries:

1. Suppose an employer gives 60000/- in cash to his employee as gift. Will it cover in Sch-I?

2. If gifts are given in kind to its employees whether the employer can avail ITC paid at the time of purchase of these gift items?

3. If employer pays incentive to its employees which is not mentioned in the employment contract and not part of his CTC but due to trend in industry he gives some incentive to some of his employees. Whether this will be covered in Schedule-I?

Please reply.

Regards

Archna Gupta

[Rajagopalan Ranganathan]

Madam,

According to proviso to Sl. No. 2 of Schedule I of CGST Act, 2017 "Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both."

Therefore if the value of the gift exceeds ₹ 50,000/- it is liable to gst. If gst payable then ITC can be availed by the employer. However if the gift is in the nature of incentive for doing exceptional job/work then it may be considered as compensation for doing good work and the same may be treated as payment made in the course of employment, However, this will lead to legal battles in the Court of Law.

[Archna Gupta]

Thanks Rajagopalan Sir. I still have more queries on thi discussion as below:

If the employer pays gift in cash then will it be treated as transaction in money and money is neither goods nor service? If it is so then this transaction will not fall in Sch 1?

If the gift is given in kind and the value is below 50000/- per employee, in that case can we avail ITC because we are not paying any tax?

In furtherance to that we can claim ITC only if the goods/services are used in making outward supply but this is not the case in this situation. Please clarify.

Regards

[KASTURI SETHI]

Section 17(5) (h) of CGST Act talks of goods disposed of by way of gift. Gift in cash is not in picture here.Schedule-I does not talk of gift in cash.

[YAGAY andSUN]

Only gifts of value more than ₹ 50,000 made without consideration are subject to GST when made in the course or furtherance of business. This clarification brings clarity that any supply from employer to employee which is part of the CTC (cost-to-company) will not be considered a supply. Gift has not been defined in the GST law. In common parlance, gift is made without consideration is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift.

[KASTURI SETHI]

Comprehensive and crystal clear reply by M/s. Yagay and Sun, Sir. In fact, his reply has enriched my knowledge, it being full of legal force.

[CSSANJAY MALHOTRA]

1. Not covered in Schedule-I, as it covers matters, where consideration is not received and furthermore supply of goods / services has to be there. Proviso has to be read along with main content which says gift and gift of what, gift of goods/ services. in your issue, cash is given and money is excluded in Sec 2(52) of CGST Act 2017 from definition of "Goods"

2. Call has to be taken by you to charge GST if ITC has been availed. [Refer Point 1 of Sch-1] OR Reversal of ITC as per Sec 17(5)(h) of CGST Act 2017. Levy of GST should always be preferred to as no scope of litigation as arise in case o calculation of reversal amount. [ gifts should be of goods/services]

3. Not covered as employee has to include the same in his Total income. Incentives are rewards and not gifts. In most of the cases, incetives to employees forms part of their salary in Income Tax Act.

[Archna Gupta]

Thanks Sanjay ji.

My all doubts are cleared on this matter. Thanks once again.

[CSSANJAY MALHOTRA]

Dear Archna,

Please make sure in point No. 3 that incentive should be in form of Cash reward and not in form of goods / services or else will get covered in Sch-1. Thanks.

[Archna Gupta]

Understood. Thanks

[PAWAN KUMAR]

As per my view

1- no supply as per sch-I because no goods/services involved.

2-If gift purchase and give to employee, itc is not claimable.

3-no incentive is also in form of money, which also not goods., Hence not fit under sch-I.

[KASTURI SETHI]

The replies posted by Sh.Sanjay Malhotra CS is very comprehensive and crystal clear and covers all aspects. Left no doubt at all.

AI Summary

Gifts exceeding threshold are taxable supplies and may attract GST, input tax credit implications and ITC reversal obligations. Cash gifts or cash incentives from employer to employee are treated as money and not supplies under Schedule I, whereas gifts in kind supplied to employees are supplies of goods: lower value occasional gifts are exempt from being treated as supplies by proviso, but gifts exceeding the statutory threshold are taxable, allowing the employer to be liable for GST and to claim ITC subject to conditions or to reverse ITC when required under the reversal mechanism.