GST Applicability - Gifts

[Ethirajan Parthasarathy]

GST ON GIFTS

Gift to employees’ worth more than 50K is treated as “supply” and is subject to GST.

Similarly under income tax law Gifts “in kind” in excess of ₹50K received from employer is treated as perquisites and taxed under the head salaries.

Relevant issues :-

1. Whether the company can take ITC incurred on purchase of such Gifts.
2. Such Gifts are taxable under both IT rules and also under section 56(2) (X) of the Income tax.

I presume section 17 will override section 56(2) (X).

3. What should be the accounting entries when tax invoice’s raised for giving away Gift in kind in excess of 50K given to employees on special occasion like Diwali.

AI Summary

Deemed supply of gifts: GST applies to employer-to-employee gifts, affecting input tax credit and perquisite taxation.
Gifts from an employer to an employee exceeding the statutory high-value threshold are treated as deemed supply for GST, attracting GST and allowing the employer to claim input tax credit on purchase of such gifts; concurrently, such gifts are taxable as perquisites under income-tax law. Conflicting GST provisions that block ITC on goods disposed of by way of gift have prompted debate, but administrative clarification supports ITC availability when the gift is a deemed supply, with consequent accounting entries for staff welfare and recognition of outward supply tax invoices.