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APPliCAbiliTy of GST on reimburSemenTS of buSineSS exPenSeS To emPloyeeS

nature of gift. In view of Schedule I to the Reimbursement of expenses claimed by
CGST Act, 2017, following activity shall be employees for supplies received from
treated as supply even if made without
consideration: registered dealer

“Supply of goods or services or both 5. If reimbursement of expenses is claimed
between related persons or between by employees for supplies received from
distinct persons as specified in section 25, registered dealer then the same shall not be
when made in the course or furtherance subject to GST, if such services are performed
of business by employees in the course of or in relation
Provided that gifts not exceeding fifty to employment in view of Schedule III to the
thousand rupees in value in a financial CGST Act, 2017. In such case there may be
year by an employer to an employee two scenarios firstly, where tax invoice is in
shall not be treated as supply of goods the name of employee and secondly, where
or services or both.” tax invoice is in the name of employer. In
Further, as per Explanation to section 15, For the former case, supplier of service will
charge GST and recipient of service will be
the purposes of this Act,— the concerned employee. Thus, employer
(a) persons shall be deemed to be “related will be unable to take credit of tax paid as
persons” if— the tax invoice does not contain name and
(i) such persons are officers or directors GSTIN of employer whereas in the latter
of one another’s businesses; case, employer shall be eligible to take credit,
(ii) such persons are legally recognised as such expenses are incurred in the course
or furtherance of business and tax invoice
partners in business; contains name and GSTIN of employer.
(iii) such persons are employer and
employee; 6. Reimbursement of expenses claimed
(iv) any person directly or indirectly by employees for supplies received from
owns, controls or holds twenty-five unregistered dealer
per cent or more of the outstanding
voting stock or shares of both of 6.1 Scenario till 13-10-2017 - If reimbursement
them; of expenses is claimed by employees for
(v) one of them directly or indirectly supplies received from unregistered dealer
controls the other; then the same shall not be subject to GST
on the same principles as discussed above.
(vi) both of them are directly or indirectly However, in such case supplier of service
controlled by a third person; will not charge GST on the goods or services
(vii) together they directly or indirectly supplied, consequently transferring the onus
control a third person; or of discharging the tax liability to recipient

(viii) they are members of the same family; in view of section 9(4) of the CGST Act,
2017. As per section 9(4), “the central tax
Therefore, in view of Schedule I to the CGST in respect of the supply of taxable goods
Act, 2017, any reimbursement claimed by or services or both by a supplier, who is
employee outside the purview of employment not registered, to a registered person shall
contract and policy of the company, being be paid by such person on reverse charge
in the nature of gift such as reimbursement basis as the recipient and all the provisions
given on marriage anniversary of employee, of this Act shall apply to such recipient as
shall be subject to goods and services tax if he is the person liable for paying the tax
if the value of such supplies exceed fifty in relation to the supply of such goods or
thousand rupees in a financial year. services or both.”

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