After Goods and Services Tax (GST) came into the limelight, HR must work hard in terms of rethinking and bringing new guidelines that can satisfy both employee and employer.
GST is a tax reform that is expected to transform the Indian economy and catapult its growth. Its main objective is to streamline India’s complicated indirect tax regime that is levied by Union and State Governments.
Adopting changes like these is never easy. Everyone including small and large business entities are busy in understanding GST and complying with its regime. Even the Human Resource departments are engaged in determining the impact of GST on financial benefits for their employees under various categories across the board. Well! every new thing has got teething issues and so does implementing GST! Let us see some of these issues that you might face at the time of implementing this new tax system.
In India, there is a tradition that most of the employers follow – distributing gifts to their staff on special occasions. For example, Diwali is one of the festivals where companies distribute gifts to the workforce. There are other occasions also, like birthdays, long tenure, farewell, etc. where employers gift something either in cash or kind to their employees. Now, all these varieties of gifts will come under GST.
GST needs to be paid if the gift’s worth increases beyond rupees fifty thousand for a particular financial year.
So, how will it be calculated? If the combined value of the gifts exceeds rupees fifty thousand, then GST will be applied on the value beyond rupees fifty thousand. However, GST will be applied on the total value of an individual gift if it is worth more than rupees fifty thousand.
So, what is the additional work for HR? HR and all the related departments need to track the value of each and every gift given to its employees in the given fiscal year in order to determine how much GST needs to be applied.
Company sponsored transportation and other subsidized facilities
Now a days, most of the companies provide pick-up and drop facility to its employees. If it is provided as a benefit in the employee’s contract, GST will not be applicable. On the other hand, if it is not mentioned in the employment contract, then it will be determined as a service provided by the employer to the employee and will attract GST. The HR people have to be on their toes with active brains to come up with ideas to modify their contract with the transport vendors. The contracts can be modified by mentioning that the transportation services are a direct offering to the staff by the vendors and they are merely a mediator for recovering invoices on behalf of the vendors from the employees.
Subsidized or company sponsored food facility
Companies either offer food to the employees at subsidized rates or fully sponsor it. Also, there are special occasions, such as festivals when companies offer delicious food to their employees. In such scenarios, GST has to be paid on the sum being paid to the food vendor. However, there is a way out of it! The company can claim the credit only when it is treated as an outward supply at an open market price for its employees. There is a requirement of an amendment in the existing contract where companies have to show that food is being supplied directly to the staff by the food vendors and the company is just an entity assisting in recovering the invoices from the staff.
Transactions that remain unaffected by GST
There is some good news too! Besides the employer-employee transactions mentioned so far, there are some areas that are yet to be covered by GST.
Listed below are a few of them.
- Medical insurance and health checkups
- Assets provided by the company, such as computing devices, mobiles, etc.
- Reimbursements towards mobile
- Benefits towards relocation
- Insurance towards personal
- Long service award
- Company vehicle
- Temporary accommodation
- Leasing of house
- Employee referrals
Irrespective of the case, it is important for HR to foresee all processes as well as all transactions that are going to be affected by GST. Also, the HR and senior management have to proactively look into other unnoticed areas to refine and streamline existing processes even more. Nascent stages of introducing any change, especially a change as radical as GST require a lot of transparency in communication and responsiveness to questions and concerns. Hence, it is important for the HR department to provide communication to the stakeholders that include employees for all changes being introduced.