Employers no longer require to deduct GST on subsidised meal cost recovered from employees: AAR

The Gujarat bench of the AAR gave the ruling after Zydus Lifesciences approached the authority to seek clarification on whether GST would be levied on the amount deducted from the salaries of its employees who avail food in the factory/corporate office.

Zydus Lifesciences has entered into an agreement with the canteen service provider according to which it pays full amount to the service provider for the food served during a prescribed period on behalf of the employees. A pre-determined percentage of the amount paid by Zydus Lifesciences is recovered from the employees and the balance amount is borne by the company.

In its ruling, the AAR said that the firm is not liable to pay GST on the amount deducted/recovered from the employees.

The firm collects the partial amount from the employees and is required to pay the gross amount inclusive of GST to the canteen service by adding residual amount in the employees’ portion and is required to pay gross amount of bill inclusive GST to the canteen service provider.

Zydus Lifesciences has submitted that it does not retain with itself any profit margin in this activity, the AAR said, while ruling that GST would not be levied on the meal cost recovered from employees’ salary.

“Subsidised deduction made by the applicant from the employees who are availing food in the factory/corporate office would not be considered a supply under the provisions of …. Goods and Service Tax Act, 2017…,” the AAR said.

EY Tax Partner Saurabh Agarwal said the AAR has ruled that portion of meal cost recovered from the salary of employees would not be considered as ‘supply’ in terms of GST law as the applicant only acts as mediator for completing the payment transaction and no supply actually happened between employer and employee.

This particular issue has ambiguity since inception of GST legislation, certain ambiguities were removed by circulars issued in relation thereto though different pronouncements by advance ruling authorities has again created snags.

“Some GST registrants have been paying GST on open market value of meal in case part recoveries are made from the employees to avoid unwanted litigation which is ultimately becoming cost to the business. A clarification from CBIC on this issue would help in bringing certainty of tax position for the industry,” Agarwal said.


(With inputs from PTI)