Service Tax on amount recovered from employees

[HCL Infosytems Ltd.]

Dear Sir,

 

Our company is providing Transport facility to employees, Buses will be taken on rent by the company. Comapny will bear 50% of the cost & rest 50% will be recovered from the Employees.

My query is whether these services will be taxable, if yes then under which category.

Thanks.

[HCL Infosytems Ltd.]

To provide more clarity to  the query, my query is whether Service tax will be applicable on the amount recovered from the employees ? If yes then under which category?

[JAMES PG]

Recovery from employees towards provision of transport facility is taxable under the category "Rent A Cab"

[YAGAY andSUN]

While receiving the services from the service provider i.e. under Rent a Cab Service, you must had paid the amount of of services and service tax.  Once you had paid the required service Tax then there is no requirement to get it recovered from your employees since you are not providing services directly to your employees even if you are recovering some portion of the bil amount to the extent of their share.

As you are not the service provider, therefore, you need not to charge service tax from your employees.  Even in your Books of account you would not show such recovery amount as income but you are gonna to reduce your expenses pertaining to transportation expenses.

[HCL Infosytems Ltd.]

Sir, While receiving the services we had paid Service Tax to the extent of the amount paid to the Service Provider.

Further, we are recovering employees share from them as per the part of the company policy which will form 50% of the amount being paid to the Sevice Provider. 

In the opinion of many consultants (Some of them in this forum also) this transaction is an activity as per new Service Tax Laws w.e.f 01.07.2012. So we are wondering whether these recovery will fall under the ambit of Service Tax. if yes, then under which category Service Tax needs to be discharged because A company providing this facility to its employees cannot be a Rent a Cab Operator ??

You are requested to through some light.

[dipsang vadhel]

You may like to refer draft circular bearing ref F. No.354/127/2012-TRU. The relevant portion reads as under:

D.        Treatment of supplies made by the employer to employees

8.         A number of activities are carried out by the employers for the employees for a consideration.  Such activities fall within the definition of “service” and are liable to be taxed unless specified in the Negative List or otherwise exempted.

9.         One of the ingredients for the taxation is that such activity should be provided for consideration.  Where the employees pays for such services or where the amount is deducted from the salary, there does not seem to be any doubt.  However, in certain situations, such services may be provided against a portion of the salary foregone by the employee.  Such activities will also be considered as having been made for a consideration and thus liable to tax. Cenvat credit for inputs and input services used to provide such services will be eligible under extant rules. The said goods or services would now not be construed to be for personal use or consumption of an employee per se and rather shall be a constituent to the taxable service provided to an employee.  The status of the employee would be as a service recipient rather than as a mere employee when consuming such output service. The valuation of the service so provided by the employer to the employee shall be determined as per the extant rules in this regard.

10.       However, any activity available to all the employees free of charge without any reduction from the emoluments shall not be considered as an activity for consideration and will thus remain outside the purview of the service tax liability (facilities like crèche, gymnasium or a health club which all employees may use without any charge or reduction from the salary will be outside the tax net). However the Cenvat credit for such inputs and input services will be guided by the extant rules.

11.        Moreover, it would need to be seen whether the services provided by the employer are otherwise covered by the Negative List or exempt.  For example, the services of food and catering provided by the employer in a canteen would normally fall outside the tax net unless such canteen has both the facility of air-conditioning as well as license to serve liquor (S. No. 19 of the Mega exemption).  Likewise, services provided by way of guest house will also not be liable to tax if the tariff for such unit of accommodation is below Rs.1000 per day or equivalent (S. No. 18 of the Mega exemption).  Similarly, services of telephone and motorcar for personal use will be covered by the service tax.

 

Though the circular is draft but definitately ,it will be useful in understanding the way Dept interprets the law.

AI Summary

Taxability of employer provided services: employee recoveries for transport are taxable unless exempt or provided free. Amounts recovered from employees for employer provided transport are taxable where the service is provided for consideration-whether by direct payment or salary forgone-and employees are treated as service recipients; valuation rules apply and Cenvat credit for inputs and input services used is eligible. Conversely, services made available to all employees free of charge without salary reduction remain outside service tax. Employers must assess whether recoveries fall within taxable services, exemptions, or the Negative List and account for recoveries as either taxable receipts or reductions of expense accordingly.