GST Query – Inter-company Employee Transfer & Gratuity Recognition

[Narayan Pujar]

In a group structure, Company A and Company B permit inter-company transfer of employees as per a common HR policy. Upon such transfer, Company B recognises the past service rendered by the employee in Company A for the purpose of gratuity eligibility  and correspondingly the accumulated gratuity liability is transferred from A to B.

I see issue that arises in cases where:

• The employee has completed less than 5 years of service at the time of transfer from Company A (say 4 years), and

• Due to recognition of past service by Company B, the employee becomes gratuity-eligible within one additional year of service with Company B, whereas had the employee moved outside the group, such benefit would not have accrued.

Query for discussion:
Can the accelerated gratuity eligibility, arising solely due to group HR policy, be construed as a “service” provided by Company B to the employee, or as a taxable benefit under GST?

AI Summary

Inter-company employee transfer and gratuity recognition: whether accelerated gratuity eligibility triggers GST liability depends on characterization. Issue: whether accelerated gratuity eligibility and transfer of accumulated gratuity liability between group companies constitutes a supply by the employer to the employee subject to GST. Legal considerations include characterisation of the act as a transfer of liability between related parties versus a provision of service to the employee, the presence or absence of consideration for the alleged supply, and whether post-employment benefits or employer-employee arrangements fall outside taxable scope. Operative effect: taxability will turn on factual elementsexistence of consideration, formal transfer of liability, and classification as an employment benefit or a taxable supplydetermining whether GST applies.