GST ON INCENTIVE RECEDIVED ON GOOD SERVICES

[SUNIL PATIL]

we are providing Rent Cab Services. we received incentive from client due to good services provided. Whether GST applicable on such incentive and what is rate of GST ?.

[Rajagopalan Ranganathan]

Sir,

You have stated that the incentive is given by your client for providing good service. Hence the same may be treated as consideration for providing goods service. Therefore you have to pay gst on the incentive at the rate at which you are paying gst for providing rent a cab service.

[YAGAY and SUN]

In our view, it may happen that consideration in the form of ‘Tip or Incentives’ is given to the person who provides good services to the client/Customer, which is over and above the total amount. Such amount is not fixed and is not mandatorily required to be paid. ‘Tip or Incentives’ given by client/customer depends on the satisfaction level of the customer, and good behaviors shown by the cab driver at the time of driving cab. Therefore, it is classified as transaction in money (neither goods nor services) and will not be considered as a part of cab services and, hence, GST is not applicable on this amount.

[KASTURI SETHI]

I am of the view that incentive is integrated to taxable service. Both cannot be separated. Hence such incentive is taxable.

[YAGAY and SUN]

What is mode of payment of Tips i.e. paid in cash to you or it is being included in bill as raised by you.

[YAGAY and SUN]

Whether such incentive/tips are duly incorporated in the agreement/contract with the clients?

[KASTURI SETHI]

The following facts are undisputed :-

1. Incentive is the result of service provided.

2. Had the service been not provided (supplied), the service would not have earned incentive.

This is how incentive and the service are integrated. Nice behaviour, nice dealing, nice service etc. not independent of taxable service.

[Kashish Gupta]

Dear Sunil Ji,

As per section 7(1)(a) of CGST Act, the expression “supply” includes––

- all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal

- made or agreed to be made

- for a consideration by a person

- in the course or furtherance of business;

In the present case, the supply of service of providing higher performance than expected was not pre-agreed between both the parties. “Made or agreed to be made” is used as a past tense i.e. agreement is the pre-requisite for a supply.

Once a customer places an order, it’s an agreement to pay the price for receiving services along with applicable taxes i.e. 'an obligation to pay' for the customer. Charging for anything but the aforementioned, without the express consent of the consumer, would amount to unfair trade practice under the Consumer Protection Act, 1986.”

However, Incentive paid by the customer VOLUNTARILY is towards better services received by him/her, beyond the basic minimum service already contracted between him/her and the supplier.

The doctrine of privity of contract is a common law principle which provides that a contract cannot confer rights or impose obligations upon any person who is not a party to the contract.

Thus, incentive received from clients has no legal structure and is purely voluntary in nature. Hence, no GST.

AI Summary

GST applicability on incentives: voluntary tips may be outside supply while integrated incentives can attract tax.
Whether incentives or tips received by a rent a cab provider constitute consideration for a taxable supply. One position treats client incentives as integrated consideration and taxable at the service rate; a contrary position treats voluntary tips as outside the supply and not taxable. Key determinants are contractual inclusion, mode of payment, voluntariness, and the causal nexus between the service and the incentive.