RCM Applicability on reimbursement to employee

[Ashiesh Prremji]

Dear Sir,

Please suggest whether Import of Service for training purpose of employee will liable for RCM for employer?

Invoice is in the name of employee, will such reimbursement come in employee-employer relationship?

Thanks for your valuable suggestion!

[Alkesh Jani]

Shri Ashieshji,

Can you please elaborate your query?

[DR.MARIAPPAN GOVINDARAJAN]

As indicated by Alkesh more information for the query is required.

[Ganeshan Kalyani]

Yes, the query must be clear so as to provide right answer.

[KASTURI SETHI]

Half-hearted and half-drafted query will serve no purpose. Such query indicates that the degree of interest in the query.

[Ashiesh Prremji]

Dear Sir,

Really sorry for was not able to elaborate my query!

My concern area was RCM applicability under GST, if employer reimbursing expenses which incurred by employee for some training purposes. There is import of Service by employee in his own name but later Company reimburses to employee.

Whether Company liable to pay GST under RCM for such expenses or should come under employer- employee relationship & need not to pay ?

Hope above will clear my query....

Thanks,

[Alkesh Jani]

Shri Ashieshji,

How you have arrived at import of service and how training was undertaken, is required to be mentioned.

[Ashiesh Prremji]

Sir, Location of Supplier is Australia & employee purchased a voucher for some certification course which came through shipment in India. Through this voucher employee was able to conduct online test & examination to get certificate. For which employee directly paid to supplier & subsequently its reimbursed by company.

[Alkesh Jani]

Shri

Thanks for providing the details, in this regards my views are as under:

First, the service can be classified under SAC 999293 Commercial training and coaching services. The explanatory note is also given below for ready reference

“This service code includes any training or coaching provided by any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than the sports, with or without issuance of a certificate and includes coaching or tutorial classes.”

In terms of Section 13(12) of IGST Act, it is import of service, and shall be treated as “Inter-State” Supply.

Now, as per query, as employer is nowhere involved in the transaction or assuming training was not as per the direction of the employer, the said service is consumed for personal use, therefore, ITC is not available in the case. With regards to reimbursement of the said amount cannot be considered as gift to employee, therefore, monetary limit is not applicable in the case, and in no case it can be treated as employee to employer relationship, therefore, RCM is not applicable in the case and no GST is payable on such reimbursement.

But department MAY take the view that the employee purchased voucher and training was imparted to them by foreign service supplier, which is inter-state supply, therefore, in case of Import of Service or for making Inter-state supply, in terms of Section 24(1) of CGST employee is required to registered under GST Act, even in terms of Notification No.10/2017-IT(Rate), Sl.No.1, is required to pay tax under RCM and in this case also Registration is compulsory under Section 24(iii) of CGST Act, 2017.

In a nutshell, No, RCM is not applicable to employer, and reimbursement of the same will not fall within employee-employer relationship, as it was not as per the direction of the employer, as expense is borne was with regards to training undertaken by employee under personal capacity, such reimbursement is nothing but cost to company.

Any different view in the matter is highly solicited

[Prasanna Kumar]

This question needs to be analyzed a bit deep to correctly come to a conclusion. In my opinion the Section 24(1) ( actually it is 24(i)) talks about the persons making inter-state supply has to obtain registration. In this case the employee has availed online information services and not supplied any thing. Yes it is inter-state supply of service as per Section 13(12) of the IGST Act.

Now let me analyze the Notification No.10/2017. This notification stipulates the persons who are required to pay GST on inputs or input services, on RCM. In Serial No. 1 the recipient is mentioned as "any person located in the taxable territory other than "Non-Taxable Online Recipient".

Section 2(16) of IGST Act defines a Non-Taxable Online Recipient as "means any Government, local authority, governmental authority, an individual or any other person not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.

From this definition it is clear that an individual who is not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory is not required to pay GST on RCM basis.

Therefore, I am of the opinion, the employee need not get registered since he is not required to pay GST on RCM basis and need not pay GST on RCM basis. Also the company is only reimbursing the expenses and hence not required to pay on RCM basis.

[Ashiesh Prremji]

Thanks for expressing your views! Sir, but if company is booking such reimbursement as business expenses, then whether such expenses should be given the same treatment as company directly importing such service?

Further, I am clearing that employee is availing certification course on personal basis, on his own name & same paid by him. Further Employer reimburses to employees & booking as Training Expenses.

If any different view is there, kindly reply...

[Prasanna Kumar]

Mr.Ashiesh Premji

Please note that if the company avails this service in the company's name then the company has to pay GST on RCM basis, because the company is a registered person(presumably). For reimbursing the expenses, the company need not pay any GST on RCM basis. I hope this clears your doubts.

[Alkesh Jani]

Shri Prasanna Kumar ji,

I appreciate your analysis. With regards to the definition of “Non-Taxable online recipient, which clearly states that “….not registered and receiving online information and database access or retrieval services ….” In simple language we can say online accessing to Database, the example can be searching some case law on website of TMI, where database of case-law are stored and retrieval means the action of obtaining or consulting material stored in a computer system. Therefore, I am of the view that this may not be applicable in case of commercial training which has already been classified at 999293, and no such service is exempted, as far as I know. Moreover, it is onus on the employee to prove the exemption.

Further, only the person supplying exempted goods or service is exempted from obtaining registration, once it is concluded that it is inter-state supply or under RCM, it is compulsory to obtain registration.

However, above is just for the discussion purpose as I have already mentioned that department MAY take such view.

[Mahir S]

Ashiesh ji,

However, wrt to your further query no. 10 dated 08.07.2020, kindly note that :

(a) If the reimbursement is shown as business expense, then company is liable for GST on RCM payment,

(b) If the reimbursement is shown as training expense, then no need for payment of GST on RCM basis.

I would prefer to follow point (a) above.

[Ashiesh Prremji]

Got the Point Sir.....

Thank you so much to all of you for expressing your views & clearing my doubts.

[KASTURI SETHI]

All the experts have enlightened me on the issue. The 're-appearance' of Sh.Mahir S, Sir in this forum has not only benefited to the querist but also me. More the number of experts, more benefit to the visitors of this forum.

AI Summary

Reverse charge on imported employee training: reimbursement may trigger RCM or registration depending on recipient treatment. Whether the employer must discharge tax under the reverse charge mechanism where an employee procures a foreign online training in his own name and is later reimbursed. The service is an import under Section 13(12) and classifiable as commercial training (SAC 999293). One view treats the supply as personal consumption so reimbursement does not attract RCM and ITC is unavailable; alternative views note Notification No.10/2017 and Section 24 may compel registration and RCM if the supply is treated as inter state import and the recipient is liable.