educational expense to CEO to pay RCM this amount for this issue or not

[K KARTHIK]

Sir, in PVT LTD company,it has three Directors, one of the director daughter as chief executive of this company, she studied Management course in UK, for her studies her company sponsored takeover all the expenses from the company itself, for this expenses they showed in their Book of accounts as educational expense to CEO, for this subject - notice came from GST and asked to pay RCM to ensure the tax payment, amount is Rs.33 lakhs, now We have to pay RCM this amount for this issue or not, please guide me sir.

[Sadanand Bulbule]

In terms of Schedule I to the CGST Act, transactions without consideration between related  persons but in the course of furtherance of business are trated as supply. Also refer Section 5[3] of the IGST Act for import of service and payment of RCM on such services. 

In my personal opininon, since the company has paid the entire expenses and showed it in the books of accounts as business expenses, the company itself is the receipient of subject services and laible to pay tax under RCM. As far as ITC is concerned, the department may argue on the ground that it is not a genuine expense but personal benefit. So consult the experts for more details.

[Sadanand Bulbule]

 Refer Issue ID-120085  dated 04/06/2025

[K KARTHIK]

Yes sir company has paid the entire expenses and showed it in the books of accounts profit and loss account as  Education Expenses to CEO. My point is that I can argue with the officers that Reimbursement Expenses. Because he completed his studies and works in the company. He is concerned with the study company. Is it correct sir?

[Sadanand Bulbule]

Yes, you can argue reimbursement/business expense if, the education is relevant to the business, the CEO continues to serve the company and there’s proper documentation. Take a chance. 

But be cautious of tax authority view —

[YAGAY and SUN]

Issue Id 120087 Dated: 4-6-2025

Thanks for the detailed scenario! Let’s break it down carefully.

Facts:

• Pvt Ltd company with 3 directors.
• One director’s daughter is the Chief Executive Officer (CEO).
• The company paid for her management course expenses abroad (UK).
• These expenses are recorded as “educational expense to CEO” in books.
• GST department issued a notice for RCM payment on Rs. 33 lakhs (presumably on these educational expenses).
• You want to know if the company is liable to pay GST under Reverse Charge Mechanism (RCM) on these expenses.

Important Points to Consider:

1. Nature of Supply & Service:
   • The company paid for an educational service (course fees, expenses) on behalf of the CEO.
   • This is a benefit provided to an employee (in this case, CEO, who is related to a director).
   • The company is the recipient of this “service” for business use? Or is it considered a perquisite/benefit to the employee?
2. Is this a Supply under GST?
   • GST applies to “supply” of goods or services made for consideration.
   • The educational expenses paid by the company for the CEO’s personal benefit may be considered a perquisite or a benefit in kind, but is the company receiving a taxable service from the educational institution?
3. RCM Applicability:
   • RCM applies when the recipient of the service is liable to pay GST on certain notified services received from an unregistered supplier or import of services.
   • Usually, educational services provided by an educational institution registered under the GST act are covered under forward charge with IGST/CGST charged by the supplier.
   • If the supplier (university/college) is outside India (UK), the company would have to pay GST on import of services under RCM.
4. Is this an import of service?
   • Since the education services were received outside India (UK university), this qualifies as import of services.
   • Under Section 5(3) of IGST Act, GST is payable on import of services on RCM basis by the recipient (Indian company).
5. Is the service for business or personal use?
   • Even if the service is for the CEO’s personal benefit, if the company paid and received the service (imported), it is treated as import of service.
   • GST law does not differentiate if the service is for business or personal benefit when it comes to import of services. The Indian recipient (company) must pay GST under RCM.
6. Are there any exemptions?
   • Educational services supplied by an educational institution are exempt from GST only if supplied directly to students.
   • Here, the company is paying, so this exemption likely does not apply.
   • The supply is from a foreign educational institution, so exemption under Indian GST laws for educational services may not apply.

Conclusion / Guidance:

• The Rs. 33 lakhs spent by the company on the CEO’s educational course abroad is considered import of service.
• The company as the recipient of this service must pay GST under RCM on the value of services imported.
• GST department’s demand for RCM is valid.
• The company should pay GST on Rs. 33 lakhs under RCM, self-invoice, and file the tax accordingly.
• The company may claim Input Tax Credit (ITC) if the education expense is related to business operations (though it can be sensitive depending on whether the expense is allowed as business expenditure).

Additional suggestion:

• Review the exact nature of the agreement with the foreign institution.
• Consult a GST expert or tax consultant to confirm eligibility for ITC and ensure compliance.
• Maintain documentation showing the course fees, payment evidence, and correspondence with the educational institution.

***

[K KARTHIK]

Thanks for valuable reply sir. guiding in detail. Thank you so much.

[K KARTHIK]

Dear Sir

For this issues shall I take Circular No.172/04/2022-GST dt.06.07.2022 Sl.No.5 point of Perquisites provided by employer to the employees as per contractual agreement to argue. 

[Sadanand Bulbule]

In addition to the support of the CBIC Circular No.172/04/2022-GST dated 06/07/2022 as regards to the perquites, being outside the scope of supply, emphasise upon the following entry to ensure that no GST is applicable:

SCHEDULE III

[See Section 7]

ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

1. Services by an employee to the employer in the course of or in relation to his employment.

[K KARTHIK]

Thank you for your great support sir

[K KARTHIK]

“As per Section 13(2) of the IGST Act, 2017, the Place of Supply of services, other than those covered by specific subsections, shall be the location of the service recipient. In the present case, the education service has been provided by the University of Bath, United Kingdom, to our CEO, who was physically present outside India and pursuing her postgraduate studies abroad throughout the entire period of the course. Hence, the service recipient is located outside India, and accordingly, as per Section 13(2), the Place of Supply is outside India (United Kingdom).

Since the Place of Supply is outside India, the transaction does not satisfy the definition of ‘import of service’ under Section 2(11) of the IGST Act. Therefore, the payment made by the company towards foreign university fees is not an import of service and hence not liable to GST under the Reverse Charge Mechanism (RCM) under Section 5(3) of the IGST Act. The company has merely borne the education expenses on behalf of the employee, but the beneficiary of the service continues to be the employee abroad, not the company. Accordingly, RCM is not attracted.”

AI Summary

Import of services: recipient liability for GST under reverse charge may arise when a company pays foreign education fees.
The company paid a foreign university's fees for its CEO and recorded them as education expenses; the GST department demands GST under RCM treating the company as recipient and import of services under Section 5(3) of the IGST Act. A counter-argument invokes Section 13(2) (place of supply) and CBIC Circular No.172/04/2022-GST plus Schedule III to contend the recipient is located outside India and the employer-borne perquisite may fall outside GST, but authorities may nonetheless challenge ITC and the characterization of the expense.